ACCA AA · Chapter 4 · Question 2 of 11
An audit firm prepares the financial statements of Garnet Co, a private company, and also audits them. Which threat to independence is most clearly created?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Self-review threat
Explanation
When the audit team evaluates financial statements prepared by its own firm, it is reviewing its own work and may not identify errors or may be reluctant to admit them. For a non-public interest entity this may be acceptable with safeguards, such as using separate staff for the accounting work; for a public interest entity it is generally prohibited.
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