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Auditing & Assurance › Ethics & Independence

What financial and business relationships threaten independence?

Intermediate

Answer

Direct or material indirect financial interests in the client (shares, loans), close business relationships (joint ventures, dependence), loans/guarantees to or from the client, and employment relationships (audit staff joining the client, or client staff on the team) all threaten independence via self-interest, familiarity, or intimidation. The Code restricts or prohibits these for the audit team and firm.
Real-world example An audit team member must dispose of shares held in the audit client to remove the self-interest threat.

Common follow-ups: Why are loans to/from clients restricted? | What about staff moving to the client?

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All 18 Ethics & Independence questions