The practitioner is the independent auditor of a listed company with assets of $26,000,000. The listed company is experiencing difficulty with a new financial accounting policy on accounting for derivative transactions. Management at the listed company requested assistance from the audit practitioner in resolving how best to implement the new accounting policy.   Required:   Identify and explain the threat to independence.  Evaluate the significance of the threat identified and whether there are any safeguards that can be put in place to eliminate or reduce the threat.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Practitioners who perform assurance engagements are required to be independent of the client. The following describes a common scenario experienced by practitioners who perform assurance-related services on behalf of their clients:

 

The practitioner is the independent auditor of a listed company with assets of

$26,000,000. The listed company is experiencing difficulty with a new financial accounting policy on accounting for derivative transactions. Management at the listed company requested assistance from the audit practitioner in resolving how best to implement the new accounting policy.

 

Required:

 

  1. Identify and explain the threat to independence. 
  2. Evaluate the significance of the threat identified and whether there are any safeguards that can be put in place to eliminate or reduce the threat. 
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