1. In this case, Brock Lesnar as a member of the audit team has a borrowing guaranteed by the audit client - Richardson which is not a bank or similar institution, then according to APES 110. 290.120, a self-interest threat is created.
In accordance with APES 110.290.120, if a member of the audit team accepted a loan which is guaranteed by an audit client that is not a bank or similar institution, the self-interest threat to independence would be so significant that no safeguards could decrease the threat to an acceptable level. The firm should remove Brock Lesnar from the audit team.
2. In this scenario, audit independence cannot be attained because the borrowing and guarantee is material to both Brock Lesnar and Richardson …show more content…
If a member of the audit team has a material financial interest in an entity and an audit client also has a financial interest which can exercise significant influence in that entity, then as per APES 110.290.112, a self-interest threat may be created. Here, the managed investment fund (financial interest) purchased by Stephanie McMahon (a member of the Audit Team) are also held by Nutrition Ltd (audit client) and was the top 10 shareholder. Hence, a self-interest threat is created.
Accordingly, if such interest is material to any party, and the audit client can exercise significant influence over the other entity, no safeguards could reduce the threat to an acceptable level. Therefore, Stephanie McMahon with such an interest must, before involving in the audit team, either: (a) dispose of the interest; or (b) dispose of a sufficient amount of the interest so that the remaining interest is no longer material (APES 110.290.112).
2. Independence is deemed to be compromised since Stephanie McMahon purchased significant amounts of units in the fund, thereby suggesting the financial interest is material to Stephanie McMahon. Besides, Nutrition Ltd as one of the top 10 shareholdings can exercise significant influence over the fund. Therefore, independence is unlikely to be achieved (APES …show more content…
According to APES 110.290.143, self-interest, self-review or familiarity threats would be created if, before the period covered by the audit report, a member of the audit team was an employee in a position to exert significant influence over the preparation of the client’s accounting records or Financial Statements on which the firm will express an opinion. In this case, Rebecca Ferguson is a previous employee of S.Burrows Ltd (audit client) and also as the manager on the audit team of S.Burrows Ltd now. In short, she is reviewing itself. This may create self-interest and self-review threats. Besides, Rebecca Ferguson used to work in S.Burrows Ltd that she may have a good relationship with S.Burrows Ltd’s employees or directors. This may create the familiarity