The application of the fundamental principles set out above is considered by the ACCA Code within a conceptual framework. This framework acknowledges that these principles may be threatened by a broad range of circumstances. This approach identifies the following five potential categories of threats to the fundamental principles:
- Self-interest threat: For example, if the auditor earns a large proportion of his revenue from a particular client, he may be unwilling to upset that client by issuing an unfavourable audit report.
- Self-review threat: For example, if the auditor performs accountancy work for a client in addition to the audit, he may find himself in a situation where he is reviewing his own work and may therefore not be as critical of it as he might be if he was reviewing someone else’s work.
- Advocacy threat: For example, supporting the client in a legal case may lead to a perceived loss of independence.
- Familiarity threat:For example, acting for a client for a long period of time may mean that the auditor becomes less critical of that client’s reporting practices.
- Intimidation threat: For example, a strong finance director may intimidate junior members of the audit team and persuade them not to report errors found during their testing.