Page 43 - AA Integrated Workbook STUDENT 2018-19

Ethics and acceptance
1.5 Safeguards
A safeguard is an action or measure that eliminates a threat, or
reduces it to an acceptable level. If the threat cannot be eliminated or
reduced to an acceptable level, the assurance provider must decline or
resign from the engagement.
Threat
Self-interest
 Owning shares in a client
 Fee dependency
 Gifts and hospitality
 Employment with the client
 Overdue fees
Familiarity
 Long association
 Personal relationships
 Movement of staff between
the firm and client
Self-review
 Self-review
 Accounts preparation
 Internal audit
 Tax calculations for
inclusion in the financial
statements
Examples of safeguards
 Sell the shares
 For listed clients, fees from one client
should not exceed 15% of the firm’s fee
income
 Perform an Engagement Quality Control
Review (EQCR)
 Only accept if trivial and inconsequential
 The auditor should notify the firm of possible
employment
 Remove the person from the team
 Cease audit work until arrangement for
payment has been agreed
 For listed clients, rotate the audit partner
after 7 years
 Remove the person from the team
 Review the composition of the team
 EQCR
 Where non-audit services are provided,
separate teams must be used.
 Non-audit services provided to listed clients
are more restricted.
 Not allowed for listed clients.
 For non-listed clients the services must be
routine and mechanical
 For listed clients services must not be in
relation to financial accounting systems
 Obtain advice from an external tax
professional
39