- 6 Marks
Question
Ackah Senzu had been the Finance Director of Keke Ltd for the immediate past eight years, influencing all the major financial policies of the company. Last year, he moved to Plus Associates, an audit firm, as a Partner. The Directors of Keke Ltd then appointed Plus Associates as their auditors because of the strong relationship with Ackah Senzu. The Senior Partner assumed the engagement responsibility of the audit of Keke Ltd but asked Ackah Senzu to review the audit work.
Required:
Discuss the threats and safeguards of this decision.
Answer
Threats:
- Self-review threat – Since Ackah Senzu was the Finance Director for the past eight years, he would be reviewing his own work if he were to review the audit. This poses a significant threat to objectivity and independence.
- Familiarity threat – Ackah Senzu’s strong relationship with the directors of Keke Ltd could lead to a lack of professional skepticism, making him more lenient in his review.
Safeguards:
- Reassigning the review – Ackah Senzu should not be allowed to review the audit file. Another independent partner or senior staff member in the firm should be assigned to review the audit work.
- Independent engagement partner – A different partner should be appointed as the engagement partner to avoid familiarity or self-review threats.
- Tags: Audit Independence, Ethical Issues, Familiarity Threat, Safeguards, Self-review threat
- Level: Level 2
- Topic: Professional and Ethical Considerations
- Series: NOV 2021
- Uploader: Theophilus