What is an example of a self-review threat?

What is an example of a self-review threat?

• A. Providing financial advisory services to an audit client
• B. Conducting an internal audit for the client
• C. Acting for an audit client in litigation
• D. Preparing tax returns for an audit client

Answer: (B)

A self-review threat arises when an auditor is in a position to review their own previous work or judgments during an audit engagement, which could impair their objectivity and independence. In the context of the choices given, conducting an internal audit for a client exemplifies a self-review threat because if the auditor has previously been involved in the internal audit function, they may later need to evaluate that work during the external audit. This situation creates a conflict, as the auditor is essentially reviewing their own prior conclusions and assessments, which can lead to a lack of impartiality. The other scenarios do not represent a self-review threat to the same extent. For instance, providing financial advisory services or representing a client in litigation implies different types of relationships and potential conflicts, but does not directly involve reviewing one's own work. Preparing tax returns could present independence issues but typically does not fall under the definition of self-review since the audit of financial statements is not based on the auditor's own prior representations or work efforts.

A self-review threat arises when an auditor is in a position to review their own previous work or judgments during an audit engagement, which could impair their objectivity and independence. In the context of the choices given, conducting an internal audit for a client exemplifies a self-review threat because if the auditor has previously been involved in the internal audit function, they may later need to evaluate that work during the external audit. This situation creates a conflict, as the auditor is essentially reviewing their own prior conclusions and assessments, which can lead to a lack of impartiality.

The other scenarios do not represent a self-review threat to the same extent. For instance, providing financial advisory services or representing a client in litigation implies different types of relationships and potential conflicts, but does not directly involve reviewing one's own work. Preparing tax returns could present independence issues but typically does not fall under the definition of self-review since the audit of financial statements is not based on the auditor's own prior representations or work efforts.