1. Book-keeping or Other Services Related to the Accounting Records or Financial Statements of the Audit Client:
   • When an audit firm provides bookkeeping or accounting services to a client, it risks auditing its own work. This creates a self-review threat, which impairs the auditor’s objectivity and independence. The Sarbanes-Oxley Act prohibits auditors from providing such services to audit clients.
2. Financial Information Systems Design and Implementation:
   • If an audit firm designs or implements financial information systems for a client, there is a risk that the auditor will later have to audit systems they helped create. This again creates a self-review threat and could impair the auditor’s independence. Such activities could result in a conflict of interest if the results of these services are significant to the financial statements.
3. Internal Audit Outsourcing Services:
   • Providing internal audit services to an audit client creates a significant threat to independence, as the auditor could end up auditing their own work or that of their colleagues. The Sarbanes-Oxley Act restricts auditors from performing internal audit functions for audit clients, especially where the work relates to financial systems, controls, or financial statements.
4. Management Functions or Human Resources:
   • If an audit firm engages in management functions or human resources activities, such as acting as a director or officer of an audit client, recommending executive hires, or conducting performance evaluations, it compromises the auditor’s independence. The auditor could become too closely aligned with management, which could impair their ability to remain objective.
5. Appraisal or Valuation Services, Fairness Opinions, or Contribution-in-Kind Reports:
   • Providing valuation or appraisal services, particularly when related to the financial statements, may lead to a situation where the auditor has to audit the valuation work they or their firm performed. This creates a self-review threat and may impair independence, especially if the valuations are material to the financial statements.
6. Actuarial Services:
   • Actuarial services that involve a decision about amounts to be recorded in the financial statements create a conflict of interest. The auditor may be put in a position where they have to audit assumptions and calculations that they or their colleagues have made, thereby impairing independence.
7. Legal Services:
   • Providing legal services to an audit client, especially those that could only be performed by someone qualified to practice law, may lead to a conflict of interest. The auditor’s role as an advocate for the client could impair independence and objectivity.
8. Broker or Dealer, Investment Adviser, or Investment Banking Services:
   • Acting as a broker, dealer, investment adviser, or investment banker for an audit client creates an advocacy threat. The auditor may become an advocate for the client’s interests, which can impair objectivity and independence.
9. Expert Services Unrelated to the Audit:
   • Providing expert opinions in legal or regulatory proceedings unrelated to the audit can also impair independence. The auditor may be seen as supporting the client’s position, which can lead to a conflict of interest.

(Any 4 points @ 2.5 marks each = 10 marks)