What is management threat in audit?
“A management threat arises when the audit firm undertakes work that involves making judgments and taking decisions which are the responsibility of management (for example, where it has been involved in the design, selection and implementation of financial information technology systems).
What are threats to auditor independence?
However, there are some threats that auditors may face which may endanger their independence as well as objectivity. These threats include self-interest, self-review, familiarity, intimidation, and advocacy threats.
What are the threats to the internal audit profession?
The most prevalent objectivity threats included social pressure threat, personal relationship threat and familiarity threat. An internal auditor ranked social pressure threat, economic interest, and personal relationship as the top three threats that could threaten objectivity.
What is ethical threat in auditing?
An ethical threat is a situation where a person or corporation is tempted not to follow their code of ethics. The professional accountant must always be aware that fundamental principles may be compromised and therefore look for methods of mitigating each threat as it is identified.
How can intimidation threats be reduced?
Safeguards: The safeguards might include:
- Consider the appropriateness or necessity of modifying the assurance plan for the assurance engagement;
- Assigning an assurance team that is of sufficient experience in relation to the individual who has joined the assurance client;
How do you reduce self-review threats?
The most effective safeguard against the self-review threat is the segregation of teams. Audit firms that provide non-audit services to clients must use separate members for each assignment. This way, they will never face the threat of having to review their own work.
How will the threats affect the auditors work?
The researcher found that threats (Self-interest threats, Self-review threats, Advocacy threats, Familiarity or intimacy threats, and Intimidation threats) affect the auditor’s independence of mind and appearance, and the variables of speciality and experience don’t have an effect in the auditor’s awareness of the …
What is management participation threat?
Management Participation Threat is the threat that results from an auditor taking on the role of management or otherwise performing management functions on behalf of the audited entity and thus not being able to be objective.
What are threats to fundamental ethical principles?
Threats to compliance with the fundamental principles Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Many threats fall into the following categories: self-interest • self-review • advocacy • familiarity • intimidation.
What are the 5 ethical threats?
THE MAIN THREATS TO ETHICAL BEHAVIOUR
- Self-interest threat. – the threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or behaviour;
- Self-review threat.
- Advocacy threat.
- Familiarity threat.
- Intimidation threat.
What is audit intimidation threat?
An intimidation threat exists if the auditor is intimidated by management or its directors to the point that they are deterred from acting objectively. Example. ABC Company is unhappy with the conclusion of the audit report and threatens to switch auditors next year.
What is an example of intimidation?
Intimidating is defined as acting in a way that inspires fear or demands great respect. When you threaten a younger kid on the bus until he gives you his lunch money, this is an example of intimidating.
A management threat is where the auditor finds himself in the shoes of the management. The work that belongs to the management is being requested to be done by the auditor. Eg, tax filing. The director can say that while you are examining the tax costs, why not file the tax returns as well?
What to do if an auditor is exposed to a threat?
If an auditor is exposed to a certain threat, he or she should either develop safeguards to reduce the threat to an acceptable level or resign from the audit engagement. What is Auditor Independence? Auditors are expected to provide an unbiased and professional opinion on the work that they audit.
What are the five threats to auditor independence?
Five Threats to Auditor Independence 1. Self-Interest Threat 2. Self-Review Threat 3. Advocacy Threat 4. Familiarity Threat 5. Intimidation Threat
What is advocacy threat in auditing?
Advocacy Threat An advocacy threat exists if the auditor is involved in promoting the client, to the point where their objectivity is potentially compromised. The auditor is assisting in selling ABC Company while also serving as the auditor for the company. The auditor may issue a favorable report to increase the sale price of ABC Company. 4.