November 18, 2019

Accepting on which an effective and successful working relationship

Accepting gifts or hospitality from
audit client may create familiarity threats. 
Independent of auditor is impaired if gift and hospitality are
significant and cannot be reduced to an acceptable level by the application of
any safeguard and the auditor should not accept such gift or hospitality. However,
during festive events or any other occasion or for whatever reason, an audit
client may present a gift to the auditor as gesture of goodwill. Another
example, audit client treat the auditor to lunch during the audit in his role
as a host. But generally this is acceptable if the value is clearly unimportant,
thus, it will not affected the independence of auditor.

Hospitality is an element of many
business relationships and can provide valuable chances for developing an understanding
of the audited client’s business and for achievement the vision on which an
effective and successful working relationship depends. Therefore, the auditors’
independent is not necessarily impaired as a result of accepting hospitality
from the audited client, provided it is sensible in terms of its regularity,
its nature and its cost.

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            In
the situations, the protections to be applied by auditors to ensure their
independence is not compromised are relativity direct and
non-controversial.  The auditor gets too
close or friendly with a client so actions may be biased to assisting that
client because independent judgment is misplaced. To avoid familiarity threat,
auditors should not audit clients where close family members work. Do not
accept gift from the company or director’s company and audit partners are
rotated away from clients on a regular basis is another way to avoid the
threat.

 

 

 

 

 

 

 

3.2 Threatened or actual litigation

Where legal action between an auditor
and audit client is in progress, it seems most unlikely that the auditor will
be able to maintain objectivity in appearance will most certainly be
impaired.  For example, whether the
client has sued the auditor or the auditor has brought a case against the
client for matters such as dishonesty or overdue fees.  Threated or actual legal action is threat to
self-interest and advocacy threat. It is where legal action in relation to
audit or non-audit services takes place between the audit client and audit
firm.

In such environments the audit firm
will be concerned with achieving a favorable outcome to the legal action rather
than conducting the audit with an objective, fair state of mind of intellect.
Furthermore, with the auditor and the client on against opposing sides, it seems unlikely that the
client’s management will feel likely to make full and limit revelation to the
audit firm.

 For self- interest, conflict between the
personal interests of the auditor and the client because the auditor is tempted
to obtain personal benefit rather than provide an appropriate service for the
client. Mitigate self-interest do not hold any financial interest.

For advocacy threat, the auditor is seemed
to be promoting or supporting the client in some way, the auditor’s objectivity
may be comprised because they believes must always support the clients. To diminish
advocacy, auditor do not promote any sale of share and do not support the
client in court.

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