The auditor’s objectivity must be beyond questions
when conducting an audit. Auditors must always approach their work with
integrity and objectivity. The approach must be in a spirit of independence of
mind.
when conducting an audit. Auditors must always approach their work with
integrity and objectivity. The approach must be in a spirit of independence of
mind.
There are a number of matters which may threaten or
appear to threaten the
appear to threaten the
independence of an auditor. These include:
Undue dependence on an audit client
Public perception of independence may be put in
jeopardy if the fees from any one client or group of connected clients exceed
15 per cent of gross practice income or 10 per cent in the case of listed or
other public interest companies. This general observation needs modifying in
the cases of new practices.
jeopardy if the fees from any one client or group of connected clients exceed
15 per cent of gross practice income or 10 per cent in the case of listed or
other public interest companies. This general observation needs modifying in
the cases of new practices.
Family or other personal relationships
It is desirable to avoid professional relationships
where personal relationships exist. Examples of personal relationships include
mutual business interest with members of the group comprising the client, the
audit firm, offices or employees of the client, partners or members of staff of
the audit firm.
where personal relationships exist. Examples of personal relationships include
mutual business interest with members of the group comprising the client, the
audit firm, offices or employees of the client, partners or members of staff of
the audit firm.
Beneficial interests in shares and other
investments
investments
Partners, their spouses, and minor children should
not hold sares in or have other investments in client companies. An audit staff
member should not be employed on an audit if the staff member or some person
connected with him or her has a beneficial interest in the audit client.
not hold sares in or have other investments in client companies. An audit staff
member should not be employed on an audit if the staff member or some person
connected with him or her has a beneficial interest in the audit client.
Loans to and from clients
An auditing practice or anyone closely connected
with it should not make loans to its clients. Overdue fees may in some
circumstances constitute a loan. They should not receive loans from clients,
unless they are on the same terms as an ordinary member of the public, i.e. on
an arm’s-length commercial basis. The same applies to guarantees.
with it should not make loans to its clients. Overdue fees may in some
circumstances constitute a loan. They should not receive loans from clients,
unless they are on the same terms as an ordinary member of the public, i.e. on
an arm’s-length commercial basis. The same applies to guarantees.
Acceptance of goods and services
Goods and services should not be accepted by an
audit practice or by anyone closely connected with it unless the value of any
benefit is modest. Acceptance of undue corporate hospitality poses a similar
threat; a box of chocolates as a gift is probably acceptable, but a weekend in Paris
would not be. Acceptance of continuing or excessive corporate hospitality for
example regular attendance at football matches with a client, may well lead to
the perception that the auditors’ objectivity has been compromised.
audit practice or by anyone closely connected with it unless the value of any
benefit is modest. Acceptance of undue corporate hospitality poses a similar
threat; a box of chocolates as a gift is probably acceptable, but a weekend in Paris
would not be. Acceptance of continuing or excessive corporate hospitality for
example regular attendance at football matches with a client, may well lead to
the perception that the auditors’ objectivity has been compromised.
Actual or threatened litigation
Litigation or threatened litigation (e.g. on
auditor negligence) between a client company and an audit firm would mean the
parties being placed in an adversarial situation which clearly undermines the
auditor’s objectivity.
auditor negligence) between a client company and an audit firm would mean the
parties being placed in an adversarial situation which clearly undermines the
auditor’s objectivity.
Influences outside the practice
There is a risk of loss of objectivity due to
pressures from associated practices, banker’s solicitors, government or those
introducing business.
pressures from associated practices, banker’s solicitors, government or those
introducing business.
Provision of other services
This is acceptable in principle, but care must be
taken to ensure that the quality of audit work is not compromised because of
the urge to cross sell other, more lucrative, service to the client. This topic
is continually under review by the professional bodies. It was a contributory
factor in several recent financial scandals where the audit firms in question
seemed to lose their objectivity and become unnecessarily involved in the
affairs of their clients.
taken to ensure that the quality of audit work is not compromised because of
the urge to cross sell other, more lucrative, service to the client. This topic
is continually under review by the professional bodies. It was a contributory
factor in several recent financial scandals where the audit firms in question
seemed to lose their objectivity and become unnecessarily involved in the
affairs of their clients.
