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ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems

Brightwater Ltd's external auditor has audited the company for 14 years and, in addition, provides tax planning and system design consulting services for substantial fees. The audit committee is reviewing the relationship. Which threat to auditor independence is most directly created by the long tenure combined with the consulting work?

The combination creates familiarity and self-review threats. Long tenure makes the auditor too comfortable with management, and designing systems then auditing them means the auditor reviews its own work. The audit committee should consider rotation and restricting non-audit services.

  1. AFamiliarity and self-review threatsCorrect
  2. BIntimidation threat from the board only
  3. CAdvocacy threat from shareholder lobbying
  4. DManagement threat from the regulator

Explanation

Long association with the client creates familiarity, so the auditor becomes too sympathetic to management. Designing systems that the auditor later tests creates self-review. Intimidation and advocacy are not the main threats arising from these facts.

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