Safeguards Against Undue Influence in Auditing

The assignment discusses the need for safeguards against undue influence in auditing, focusing on self-review and self-interest threats. It evaluates the potential consequences of such influences and recommends various safeguards, including using separate engagement teams and implementing disciplinary instruments. The summary provides a brief overview of the assignment's content and significance.

Running head: THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
Threat And safe Guard of An Accountants Interest
Name of the Student:
Name of the University:
Author note:

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
Contents
Introduction......................................................................................................................................2
DISCUSSION..................................................................................................................................2
A firm is financially dependent on a particular client.................................................................4
The firm, its partners or staffs have a financial interest on the audit client.................................4
There are family ties with the client and the firm........................................................................5
The firm has been external auditors of the clients for many years..............................................6
Providing non audit service to audit clients.................................................................................7
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
Introduction
IESBA's (IFAC's) Code of Ethics for Professional Accountants gives an applied structure
that requires an expert bookkeeper to distinguish, assess, and deliver dangers to consistence with
the essential standards. The theoretical structure approach should help proficient bookkeepers to
agree to the moral necessities of the IESBA Code, and to serve the general population intrigue
(Ferrell and Fraedrich, 2015). Direction is given in a few zones: the recognizable proof of
dangers; the assessment of the noteworthiness of those dangers; and the utilization of shields that
may serve to decrease dangers to a worthy level. What's more there are conditions in which
shields can't lessen a danger to a satisfactory level, and direction is given on this too. Every one
of these focuses is examined beneath (Turley ,2015).
DISCUSSION
The International Ethics Standards Board for Accountants Consultative Advisory Group
(CAG) is involved agents of controllers and business and universal associations who are
occupied with the advancement of brilliant worldwide moral gauges. Through dynamic
conference, the International Ethics Standards Board for Accountants gets important open
intrigue contribution on its plan, venture timetable, needs, and specialized issues.
The IESBA Code of Ethics expects bookkeepers to stick to five basic standards: •
Integrity—An expert bookkeeper ought to be direct and fair in performing proficient
administrations. Objectivity of the paper is that an expert bookkeeper ought not to permit
predisposition, irreconcilable situation or undue impact of others to supersede proficient or

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
business judgments. Professional Competence and Due Care is that an expert bookkeeper has a
proceeding with obligation to keep up proficient information and aptitude at the level required to
guarantee that a customer or manager gets skilled expert administration in light of current
advancements (West, 2018). An expert bookkeeper should act tenaciously and as per pertinent
specialized and expert principles while giving proficient administrations. Confidentiality is
maintained by an expert bookkeeper should regard the classification of data procured because of
expert and business connections and ought not unveil any such data to outsiders without
legitimate and particular specialist unless there is a lawful or expert right or obligation to
uncover. Classified data gained because of expert and business connections ought not be utilized
for the individual preferred standpoint of the expert bookkeeper or outsiders. Professional
Behavior is that an expert bookkeeper ought to conform to applicable laws and directions and
ought to keep away from any activity that ruins the calling.

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
A firm is financially dependent on a particular client
Type of threat: The conceptual framework for IESBA dictates that the financial self-
interest of the firm is being threatened to the independence of the existence of the particular firm.
Evaluation of the potential consequences: At the point when the firm is found dependent it
draws its expenses from an agreement and talks to an expansive extent of aggregate firm charges.
The reliance on a customer and the tension about losing the work makes an inherent threat to
dependence if the fees from that attest engagement is large portion of total firm fees. Similar
situation arises when fees from a single client contributes to large proportion of the revenue from
a particular partner’s business book (Ferrell and Fraedrich, 2015). There might be other cases
also where the excessive fees are being charged inappropriately in response to the report which
the client might want to compensate the biased auditor.
The Various safeguards: Normally the fees that is collected from the audit client, if higher
than the proportion of fees from the other clients constituting the larger portion then the
safeguards which are recommended are
Firstly – The firm need to reduce the portion of dependence of that particular client.
Secondly – the firm should also give proper attention on the quality control reviewing the
engagement with the client internally as well as externally.
At the last – it should consult a third party and take certain key audit judgments from them.

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
The firm, its partners or staffs have a financial interest on the audit client
Type of threat: The type of threat that the above situation creates is the undue influence
of partners and staffs which is a threat to the firm’s existence. Hereby a threat to the code of
conduct of the financial institution is substantially formed (Warren and Jones, 2018).
Evaluation of the potential consequences: The consequences of this can be a threat to the
financial existence of the firm as financial interest in the audit client can lead to misinterpretation
fraud as well as misconduct of the code of ethics that is followed by the IESBA guidelines. This
in appropriation can cause the dependence of the firm on its staff and other partners in case of
any misconduct. The section includes audit engagements as well as review engagements of the
client’s books of accounts and financial statements, which will at times be manipulated by the
client with the help of the partners and other staffs who have influence on the client.
Recommendation of the various safeguards: To avoid the above circumstances, certain steps are
recommended which will reduce or at times abolish such undue influences of the staffs or
partners on the client.
 The internal and external quality control should be reviewed so that the management of
the firm is proper.
 Key judgment should be attend from a third party on the check of the relationship
between the client and the members of the audit farm
 The firm authority focusing on the significance of moral conduct and desire that
individuals from bear witness to engagement groups act in people in general interest.

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
There are family ties with the client and the firm
Type of threat: The type of threat that is created for the firm is the threat of misinterpretation
by the associated close relatives. The threat may or may not happen but there are always chances
of such misinterpretation due to close relationship (Botzem, and Quack, 2015).
Evaluation of the potential consequences: The consequences of such family ties or close
relationships can be drastic at times. With relationship knots the company carries with itself a
threat of biasness or undue influence of such family members on the ethical code of conduct of
the accounting firm. This may lead to misinterpretation of the book of accounts which if
recognized can prove to be a contempt towards the ethical code of conduct that is followed by
the accounting firm while dealing with the regular work of the business enterprise.
Recommendation of the various safeguards: Safeguards that can be recommended to avoid
the undue influence of the client’s family members or family members of the partners and the
staffs of the firm, certain recommendation can be made.
 The firms have to take proper attention and control over the external quality reviewing
the engagement of its staffs with the clients (Schipper, 2003) .
 Nonmember or non-staff individuals should be avoided to influence the code of conduct
of the firm.
 Training should be provided with timely communication to all the staffs and policies
should be made clear to them.

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
The firm has been external auditors of the clients for many years
Type of threat: The threat that is imposed in the above text is the familiarity threat, due to the
closeness in relationship between the client and the firms a sense of sympathy grow while
accepting work. This threat is found to be a threat towards the firm’s stability.
Evaluation of the potential consequences: The audit firm when engaged in close relationship
with the client, it can hinder the self-interest of the firm as familiarity threat is created in which
the members of the firm may not be that sufficient to stay professional without showing any
sympathy to the client. The similarity of the clients gets considered and there is a influence of
those clients on the preparation of the financial statement which can possess a threat towards the
existence of ethical code of conduct of the firm (Benston, Bromwich and Wagenhofer, 2006).
Recommendation of the various safeguards: Few recommendation can be made to avoid the
familiarity threats, some of them are
 The firm should have approaches and methods to actualize and screen quality control of
engagements.
 The firm should have strategies and methodology that will empower the distinguishing
proof of interest or connection between the firm or individuals from engagement group
and customers.
 The firm should have techniques to screen and if vital, deal with the dependence on
income from a solitary customer.
Providing non audit service to audit clients
Type of threat: The threat which is created by the above situation is both self-review
threat and self-interest threat.

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
Evaluation of the potential consequences: The audit firm which is giving or providing non
audit administrations to review customers may create a self-survey or self-review threat. The risk
that the situation brings in light if the fact that the service provided may influence exchanges
recorded in the money related books of accounts on which the auditor should then express a
conclusion (Barth, Beaver and Landsman, 2016) . In the same way the evaluator should express
the self-intrigue danger created by the salary which the audit firm receives from the providence
of non-audit work to the client (Holthausen, 2013). Accessing the hugeness of the dangers made
could incorporate however they are not constrained to the thinking materiality of any adjusts,
exchanges or revelations effected by the administration gave. The level of expense that is
changed for giving such services can influence the ethical code of conduct of the firm.
Recommendation of the various safeguards: Few recommendation to improve the presence of
undue influence of clients by providing them the services other than the main services that the
firms provide can be kept in check by making certain changes, some of them are:
 The firm should utilize diverse accomplishment and engagement groups with isolated
revealing lines for the arrangement of the non-confirmation administrations to an
affirmation customer.
 Certain approaches in systems should be implemented to disallow people who are
individuals from an engagement group from improperly impacting the result of
engagement.
 A disciplinary instrument should be set up to advance consistence with strategy and
methodology.

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
Conclusion
Request containing requirements on ethics are a normal component of THE ETHICAL
CODE OF CONDUCT OF ACCOUNTANTS and candidates should take after the particular
substance and exam framework demonstrates gave in this article enhance their cognizance of this
zone of the syllabus. In particular, answers should mimic the hypothetical structure approach to
manage ethics by recognizing and illuminating the sorts of peril appear in a circumstance,
evaluating the level of tremendousness of the hazard, and perceiving fitting insurances. In
circumstances where risks can't be eased by the use of shields and an engagement be declined or
pulled once again from, the technique for thinking for this should be doubtlessly elucidated.

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
References
Barth, M.E., Beaver, W.H. and Landsman, W.R., 2016. The relevance of the value relevance
literature for financial accounting standard setting: another view. Journal of accounting and
economics, 31(1-3), pp.77-104.
Benston, G.J., Bromwich, M. and Wagenhofer, A., 2006. Principles‐versus rules‐based
accounting standards: the FASB's standard setting strategy. Abacus, 42(2), pp.165-188.
Botzem, S. and Quack, S., 2015. Contested rules and shifting boundaries: International standard-
setting in accounting.
Ferrell, O.C. and Fraedrich, J., 2015. Business ethics: Ethical decision making & cases. Nelson
Education.
Holthausen, R.W., 2013. Testing the relative power of accounting standards versus incentives
and other institutional features to influence the outcome of financial reporting in an international
setting. Journal of Accounting and Economics, 36(1), pp.271-283.
Schipper, K., 2003. Principles-based accounting standards. Accounting horizons, 17(1), pp.61-
72.
Turley, S., 2015. Developments in the framework of auditing regulation in the United Kingdom.
In Auditing, Trust and Governance (pp. 223-240). Routledge.
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.

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THREAT AND SAFE GUARD OF AN ACCOUNTANTS INTEREST
Watts, R.L. and Zimmerman, J.L., 1978. Towards a positive theory of the determination of
accounting standards. Accounting review, pp.112-134.
West, A., 2018. After virtue and accounting ethics. Journal of Business Ethics, 148(1), pp.21-36.