curtin 300 auditing essay 1
Threats
Safeguards
Objective assessment
a)
Self-interest and intimidation threat:
A close relationship between a member of the audit team, and the audit client or its management arise from a common financial interest may create self-interest and intimidation threat. (APES 110 s290.124)
Per APES 110 s290.124, unless any financial interest is immaterial and the business relationship is insignificant to the firm and the client or it management, the threat creates would be so significant that no safeguards could be reduce the threat to an acceptable level. The possible solution will be:
1. The business relationship should be terminated.
2. Reduce the threat to an acceptable level; or,
3. Remove the audit member from the audit team.
Paul Smith, the member of the audit team entered into a business venture with the CFO of JD Ltd. This is a business relationship between an audit team member and an officer from audit client, who is able to influence the financial report of JD Ltd. More importantly, although Paul Smith claims that the 2 entities are in different non-competing industries, their same interest in PJ Motors is so significant. In this case, Paul Smith has to stop the business in PJ Motors to reduce the threat to insignificant level. Otherwise he will be removed from audit team.
b)
Self-interest, familiarity and intimidation threat:
Self-interest, familiarity a
Intimidation threat will be create by a family relationship between a partner of the firm who is not a member of audit team and employee in a position to exert significant influence over the preparation of the client’s accounting records or the financial statements on which the firm will express an opinion. (APES 110 s290.132)
Per APES 110 s290.132, the significance of any threat shall be evaluate and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. The safeguards include:
1. Structuring the partner’s or employee’s responsibilities to
Safeguards
Objective assessment
a)
Self-interest and intimidation threat:
A close relationship between a member of the audit team, and the audit client or its management arise from a common financial interest may create self-interest and intimidation threat. (APES 110 s290.124)
Per APES 110 s290.124, unless any financial interest is immaterial and the business relationship is insignificant to the firm and the client or it management, the threat creates would be so significant that no safeguards could be reduce the threat to an acceptable level. The possible solution will be:
1. The business relationship should be terminated.
2. Reduce the threat to an acceptable level; or,
3. Remove the audit member from the audit team.
Paul Smith, the member of the audit team entered into a business venture with the CFO of JD Ltd. This is a business relationship between an audit team member and an officer from audit client, who is able to influence the financial report of JD Ltd. More importantly, although Paul Smith claims that the 2 entities are in different non-competing industries, their same interest in PJ Motors is so significant. In this case, Paul Smith has to stop the business in PJ Motors to reduce the threat to insignificant level. Otherwise he will be removed from audit team.
b)
Self-interest, familiarity and intimidation threat:
Self-interest, familiarity a
Intimidation threat will be create by a family relationship between a partner of the firm who is not a member of audit team and employee in a position to exert significant influence over the preparation of the client’s accounting records or the financial statements on which the firm will express an opinion. (APES 110 s290.132)
Per APES 110 s290.132, the significance of any threat shall be evaluate and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. The safeguards include:
1. Structuring the partner’s or employee’s responsibilities to