52.(a)YRT Co is a firm of external auditors which has Company W,Company X,Company Y and Company Z among its audit clients.
Company W is currently being sued by one of its suppliers.YRT Co has offered legal services and will defend them in this legal case.
The audit partner of Company X has been a member of the external audit team for the past 15 years and has good relationships with the senior management of Company X.
The financial controller of Company Y is the daughter of the audit manager from YRT Co.
Company Z does not have an experienced financial department and so YRT Co helps to prepare the financial statements of Company Z in advance of the external audit.
The following are types of conflicts of interest:
A Familiarity threat
B Advocacy threat
C Self-review threat
D Self-interest threat
In the case of each of the following clients,which of the above conflicts of interest exists?
(iv)Company Z(2 marks)
(b)Which of the following would give rise to a threat of intimidation?
A Litigation against the external auditor by an audit client
B Provision of taxation services as well as audit services
C An audit partner is on the board of a client(1 mark)
(c)Ethics are a set of _______that guide behaviour.Which of the following correctly fills the blank?
A Legal guidelines
B Moral principles
C Professional regulations
(a)(i)B YRT Co is threatening its independence by taking the client's position in the legal case.
(ii)A Since the audit partner has a long-term relationship with the audit client,there is a familiarity threat.
(iii)D A self-interest threat exists if there are close personal relationships between the client and the audit team.
(iv)C Where the external auditor helps to prepare the financial statements there is a clear self-review threat.
(b)A Litigation gives rise to a threat of intimidation.The others give rise to self-interest threats.
(c)B Ethics are a moral rather than legal or regulatory issue,although professional ethics are particularly important.