Five types of Ethical Threats

(a) Self-interest
Self-interest means the accountant’s own interest being affected by the success of the client, or the continuation of the accountant-client relationship. An example would be a financial interest in a client.

If a firm providing audit and other services disagrees with the client over the accounts that it is auditing, it faces the risk of not just losing the income from the audit, but perhaps also the much greater income from providing other services.



(b) Self-review
Self-review means the accountants auditing or reviewing work that they themselves have prepared. This could include auditing work that has been prepared as part of a non-audit service, something that prompts the suggestion that firm should not provide more than one service to a client.

If the accountants provide other services that materially affect the content of the accounts, then they will have to audit figures that they themselves have prepared, for example valuations.



(c) Advocacy
Advocacy means strongly promoting the interests of the accountants’ clients and undermining the accountants’ objectivity. Accountants can be seen as acting in the clients’, rather than the public interest.

If an accountant provides legal advice to his audit client. There are two problems. Firstly providing that advice could be seen as promoting the client’s interests rather than the public interest. Secondly the accounts may need to contain provision for, or disclosure about, legal actions. This will depend on the likelihood of the success of legal action, which could in turn depend on the advice the accountant had given. Therefore there is a clear possibility of the accountant not wishing to undermine the advice he has given by taking a prudent view of the issues’ treatment in the accounts.



(d) Familiarity
Familiarity means dealing with a client’s affairs for a long time and developing a close relationship. This can lead to reliance on previous knowledge rather than a questioning approach to information supplied.

Friendships with clients may make it more likely that clients would listen to the accountant’s advice; critics, however, suggest the friendships meant that he placed excessive trust in what he was told, and would be unwilling to raise awkward issues that could jeopardize the friendships. The provision of other services may mean that accountants are less rigorous in auditing information with which their firm has been involved.


(e) Intimidation
Intimidation means conduct of the assignment or conduct towards the client being influenced by pressure exerted by the client.

This could mean that if the client wished to intimidate the accountant into giving advice that they wanted to hear, they would have a good idea of how to do so, by for example threatening to replace the firm as auditors.




*************