Resolving an ethical dilemma – suggested answers
There are a number of threats present.
First, there is a self
-
interest threat to Joe’s objectivity. This
is because Joe is reliant on the income from XY Ltd as his major client and thus, would not want to
do anything that could damage his relationship with them and compromise his revenue from them.
Second, there is a self
-
review threat which could impact on his integrity and his objectivity. That is,
Joe performs certain non-audit work and is asked to sell and promote the sale of shares of XY Ltd.
He is required to audit the sale of shares and some of the non-audit work that he did as part of the
external audit. Thus, in a sense, Joe would be auditing himself and his own work.
Thi
rd, there is an advocacy threat.
Selling and promoting the shares of his audit client would impair
his independence as he would have a vested interest in the company. A reasonable third party
would conclude that Joe is not independent of XY Ltd and thus his independence in appearance is
also impaired.
Fourth, there is an intimidation threat present. The board of XY Ltd are
threatening Joe by
potentially not renewing his contract.
And last, there is also a familiarity that since Joe has been the auditor for the past three years, he
may have developed personal relations with the client.
