Threats to independence

1. Self-interest threat- financial or other interests of members or their close family.
2. Self-review threat- when the auditor has to re-evaluate work completed by himself.
3. Advocacy threat- when the auditor is asked to promote the client’s position or represent them in some way.
4. Familiarity threat- when the auditor is too sympathetic or trusting of the client because of a close relationship with them.
5. Intimidation threat- intimidates the auditor to give an unqualified opinion otherwise not re-appoint him.

Areas of risks
 Financial interests
 Family relationships
 Business relationships
 Loans
 Fees
 Undue independence
 Gifts and hospitality
 Second opinion
 Provision of other services

Auditors specific threats to their independence and objectivity
1. Dependence on income from a particular client or group of clients may impair objectivity and independence.

Implications- auditor may not qualify the audit report when qualification is required because this will upset client who may move to another audit firm and thus cause loss of significant income.
Safeguards
 Do not accept certain assignments.
 Resign from certain assignments.
 Do not stand for reappointment as auditor.
 Reduce non audit work with a view to control gross practice income from that particular client.
 As a general rule, recurring fees paid by one or group of connected clients should not exceed the threshold of the gross practice income as follows:

Listed: 10%
Non Listed: 15%

2. Family or other personal relationships- problems may arise where a practice or anyone closely connected with it has a mutual business interest with a client or with the employee of a client.

Implications- auditor loses independence as he has a conflict between maintaining professional standards and personal