Safeguards to threats:

All decisions/safeguards should be documented to create evidence of such safeguards taken.

Documentation should be kept in the audit file. Being proactive and documenting why you are
accepting a job, what the threats are and safeguards taken.

One must take into consideration

the significance of the threat,

the nature of the assurance engagement,

the intended users,

the structure of the firm

The safeguards identified in the code are split into 3 categories;

1) Profession, legislation and regulation;

The code of ethics provides a framework that regulates all practitioners. The profession
has taken an initiative. Professional standards is thus one of the safeguards. However
this is not enough. One must also monitor behavior and take action on members that do
not abide by the regulations.

Qualifications are required to become a CPA and once you get your warrant you also
require continued education CP hours

External reviews of a firms quality assurance is another safeguard.

2) Safeguards within the client;

Competent employees to make management decisions. If they are not competent than
the independence threat increases.
Another aspect is how the auditors are appointed. If they are appointed by management
than independence threats are a bit higher. Thus this is where the audit committee has
been the difference especially in larger firms. The audit committee includes non
executive directors that are more independent and act as a good sounding point to the
director. Having an audit committee is another safeguard. In the case of PIEs you would
always have an audit committee. Here you need to communicate orally and in writing at
least annually all relationships and other matters between the firm and the audit client.
Finally, non audit services must be commissioned on an objective basis.
3) safeguards within the audit firm

1) Firm wide safeguards

2) Engagement specific safeguards

Firm wide safeguards:

- the tone from the top – the leadership of the firm must promote independence
- quality control – ISQC1
- policies and procedures to ensure independence – ie audit employees will have to
declare their investments. Networking firms: the independents requirements apply to
such firms. One must consider the independence of the network as a whole. Such
firms have global databases.
- Firm use different departments to provide different assurance/non-assurance
engagements.
- Training on independence could be another safeguard.
- Designating a member of senior management who is responsible for overseeing risk
management (including independence)
- Disciplinary action/procedures to set the tone/example.

Engagement Specific:

- Rotation of senior personnel

- Disclosing to the audit committee the work being undertaken. If you have an
independence issue the audit committee is there to help/discuss.
- Involving an additional person / professional accountant
- You may also go to another audit firm for a section of assurance if you have
independence issues.
- For PIEs there is a requirement that all the members of the audit team

PIEs – include listed companies, banks and other (most) financial institutions,
insurance companies, investment firms, other entities that have a public interest for
economic purposes due to their size, nature of their service/product and the number
of employees.

Starts when the assurance team starts when it begins the services and ends when
you issue the report – engagement period

In the case of an audit engagement (or any other continuous assurance you are
bound until you are either removed or you resign from office.
If for ex you are appointed auditor of a company in sep for the financial statements
ending in dec of that same yr. you may have not been independent up to sep
because you didn’t know that you were going to be auditor. You must discuss this
issue with the audit committee and directors. You must obtain the clients
acknowledgement in writing the responsibilities for the results of assurance services.
Go to another firm to audit the non assurance services. Such a situation is envisaged
and provided for in the code.

Assurance vs audit engagements

The independence requirements for the two differ slightly. These independence
requirements apply to: Assurance team, local firm (audit firm carrying out the service)
and the network firm.

Non-audit assurance engagement- the independence generally apply to the

assurance firm. If the report is for restricted use there the risk is lower thus the
independence requirements are toned down and only the assurance team must be
independent.

Contingent Fees

If it is an audit client we cannot accept contingent fees since you will be creating a
common interest. Also for a service provided such as a feasibility study, this cannot
be made on a contingent basis as you will not be objective.