The partner in charge of the audit of financial statements holds a significant amount of shares in his client company.

 (ii) The audit firm produces an accounting software guide book while the audit client provides the information technology expertise. 

(iii)The spouse of a member of the assurance team works as the Finance Manager with the audit client. 

(iv)Since the audit firm has the expertise in developing information technology systems, the firm was asked to help in designing and implementing an accounting information system for the client company.

 Explain why the above situations might compromise the auditor's independence (Type(s) of Threat).

 For each situation, identify TWO safeguard measures that could reduce the threat to an acceptable level. 

Answer rating: 100% (QA)

i The partner in charge of the audit of financial statements holding a significant amount of shares in his client company could compromise the auditors independence as it may lead to a selfinterest threat The partner may prioritize his personal financial interest over the interests of the audit firms stakeholders such as shareholders creditors and the public Safeguard measures that could reduce the threat to an acceptable level are The partner should disclose the ownership of the shares to the audit firm and withdraw from the audit engagement or transfer the shares to an independent party The audit firm could assign a different partner to lead the audit engagement or conduct a review of the audit procedures by an independent party ii The audit firm producing an accounting software guidebook while the audit client provides the information technology expertise may create a selfreview threat The audit firm may compromise the objectivity and impartiality of the audit opinion as it would be reviewing its own work Safeguard measures that could reduce the threat to an acceptable level are The audit firm should disclose the relationship with the audit client and the nature of services provided to the stakeholders The audit firm should establish procedures to ensure the objectivity and impartiality of the audit opinion such as obtaining an independent review of the audit work or rotating the audit team iii The spouse of a member of the assurance team working as the Finance Manager with the audit client may pose a familiarity threat The auditor ... View the full answer