The auditor must be independent of the business/company being audited. If there is a threat to auditor independence, it must be considered wisely, and appropriate steps must be taken.
Self-interest threat
The auditor might have a potential interest in the audit client. For instance, any audit team member may be looking to join the audit client or be offered some financial benefits. So, any type of interest, whether financial or non-financial, contributes to the self-interest threat.
Self-review threat
It’s a threat that auditors may be required to review their own work. In other words, the auditor may be required to prepare the financial statement and review it as well. In this case, there are higher chances of compromising the credibility of the overall auditing process as one may not be able to maintain professional skepticism while auditing one’s own work.
Familiarity threat
Familiarity threat means the auditor might have some personal ties with the audit client, resulting in impaired credibility of the audit work. For instance, a sibling of an audit senior may be working as an accounts manager at the audit client. Additionally, various situations can give rise to a familiarity threat. However, each situation needs to have some element of some relation or friendship.
Advocacy threat
Advocacy threat means the auditor seems to compromise their objectivity by representing or being close to the view of the audit client. This close cooperation might suggest that the auditor is an advocate of the audit client, resulting in objective impairment for engagement.
Intimidation threat
An intimidation threat occurs when the auditor becomes terrified or intimated to the point that it’s impossible to remain objective while executing the audit.
Conclusion
The existence of auditor threat indicates the auditor may not be able to execute audit activities with professional skepticism and attitude. Broadly, there are five threats to auditor independence: self-interest, self-review, familiarity, intimidation, advocacy threat, etc.
Daniyal Khatri, ACCA, is a seasoned bookkeeping specialist with over a decade of experience in designing precise, compliant financial systems. His expertise spans daily transaction tracking, ledger management, and financial record accuracy, ensuring businesses maintain organized, audit-ready books. Daniyal excels at aligning processes with evolving compliance standards, integrating user-friendly tools to automate workflows, and translating regulatory complexities into actionable steps. By combining technical proficiency with a focus on clarity, he empowers organizations to achieve error-free bookkeeping, minimize risk, and build a foundation for informed financial decisions.
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