Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

Comment on the following situations/statement
a) Explain the types of threat as explained in ICAN Code of ethics.
b) Lalu and Associates has been appointed as auditor for the year 2070/71 of ABC Bank Limited, a commercial bank in the general meeting dated 25 Paush 2070 for remuneration of Rs. 500,000. In the course of the audit, the auditor finds that the audit fee is too low and negotiates with the management for increase of the fees to the tune of Rs. 700,000. The board approves the increased fee.
Answer

a) The various types of threats explained in ICAN code of ethics are as follows:

 Self-interest threat – the threat that a financial or other interest will inappropriately influence the professional accountant‟s judgment or behavior; For e.g. low balling, hospitality or other benefits, contingent fees, loans to clients etc.

 Self-review threat – the threat that a professional accountant will not appropriately evaluate the results of a previous judgment made or service performed the professional accountant, or another individual within the professional accountant‟s firm or employing organization, on which the accountant will rely when forming a judgment as part of providing a current service; For e.g. valuation services along with audit service, accounting services.

 Advocacy threat – the threat that a professional accountant will promote a client‟s or employer‟s position to the point that the professional accountant‟s objectivity is compromised; For e.g. the auditor Should not offer legal services to a client and defend them in dispute or litigation which is material to the financial statement

 Familiarity threat – the threat that due to a long or close relationship with a client or employer, a professional accountant will be too sympathetic to their interests or too accepting of their work. For e.g. participation in client affairs, family and personal relationship, audit partners leaving to join clients etc.

 Intimidation threat – the threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the professional accountant. For e.g. if there is actual or threatened litigation between client and assurance firm, the firm should not continue to act.

b) As per section 67 of Bank and Financial Institutions Act, 2063, the remuneration of the auditor shall be as prescribed the general meeting if he or she has been appointed the general meeting and the board if he or she has been appointed the board. In the given case Lalu and Associates has been appointed the general meeting of ABC Bank Limited and hence his remuneration shall be as prescribed general meeting. So, the revision in the audit fees the board in this case is not valid.



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