Page 338 - CA Inter Audit PARAM

CA Ravi Taori

The situation given in the question signifies that auditors have formed relationships with client where they
may end up being too sympathetic to the client’s interests. Due to free hospitality enjoyed by engagement
team members, they may take a sympathetic view to issues which may have arisen during course of audit.
In this way, familiarity threats are created in the situation.

QNO-- Independence of mind & appearance Old Course – (M19E/N20M/M23R)
COA.32 Bhaskar CNO C1OC.140
"Independence of mind and independence in appearance are interlinked perspectives of Independence of

auditors." Explain.
Answer ➢ Independence
Independence implies that the judgment of a person is not subordinate to the wishes or

direction of another person who might have engaged him.
The auditor should be independent of the entity subject to the audit.
There are two interlinked perspective of independence of auditors,
• independence of mind and
• independence in appearance.

The Code of Ethics for Professional Accountants issued by International Federation of
Accountants (IFAC) defines the term “Independence” as comprising both-
• Independence of mind
The state of mind that permits the provision of an opinion without being affected by
influences allowing an individual to act with integrity, and exercise objectivity and
professional skepticism; and

• Independence in appearance
The avoidance of facts and circumstances that are so significant that a third party
would reasonably conclude an auditor’s integrity, objectivity or professional
skepticism had been compromised.” Independence of the auditor has not only to exist
in fact, but also appear to so exist to all reasonable persons.

Auditor & Related Concepts -Types of Threats Old Course --(SM17/N18M/M19M/N19R/SM20/SM21
QNO--
COA.33 to Independence /M22R)
Bhaskar CNO C1OC.160 New Course – (J25M)
The Code of Ethics for Professional Accountants prepared by the International Federation of Accountants
(IFAC) identifies five types of threats. Explain.
OR
The auditor should be straightforward, honest and sincere in his approach to his professional work. He must
be fair and must not allow prejudice or bias to override his objectivity. He should maintain an impartial
attitude, and both be and appear to be free of any interest which might be regarded as being incompatible
with integrity and objectivity. Many different circumstances, or combination of circumstances, may be
relevant and accordingly it is impossible to define every situation that creates threats to independence and
specify the appropriate mitigating action that should be taken. In addition, the nature of assurance
engagements may differ, and consequently different threats may exist requiring the application of different
safeguards. Explain stating clearly the five types of threats as contained in Code of Ethics for Professional
Accountants, prepared by the International Federation of Accountants (IFAC).
OR
Familiarity threats are self-evident and occur when auditors form relationships with the client where they
end up being too sympathetic to the client’s interests. Explain.
OR
Write a note on “Self-review threats”
Answer ➢ The auditor should be
straightforward, honest and sincere in his approach to his professional work.
He must be fair and must not allow prejudice or bias to override his objectivity.
He should maintain an impartial attitude, and both be and appear to be free of any interest
which might be regarded as being incompatible with integrity and objectivity.

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