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- 5 Marks
Question
The Finance Director of the Company informed the audit partner that the reason for appointing Add Consult as auditors was because they audit other similar companies, including the Company’s main competitor. The Finance Director doubts how Add Consult keeps information (obtained during the audit) confidential.
Required:
Explain the safeguards which your firm should implement to ensure that this conflict of interest is properly managed. (5 marks)
Answer
- Notify Both Clients: The firm should inform both International Training Center (ITC) and its competitor that it is acting as auditor for each of them. If necessary, obtain consent from both parties to proceed with the audits.
- Use Separate Engagement Teams: Establish different engagement teams for the audits of ITC and its competitor to prevent any overlap of personnel or knowledge between the two audits. This ensures that there is no sharing of sensitive information.
- Implement Physical Barriers (Chinese Walls): The firm should ensure strict physical and electronic separation between the teams handling the two audits. This may involve setting up separate offices, secure data systems, and access controls to safeguard confidential information.
- Confidentiality Agreements: All members of the engagement teams should sign confidentiality agreements to reaffirm their commitment to keeping client information private and not sharing it across teams.
- Regular Monitoring of Safeguards: The firm should assign a senior auditor, not involved in either engagement, to regularly review and monitor the application of these safeguards to ensure that the conflict of interest is properly managed.
(Total: 5 marks)
- Tags: Auditor Independence, Confidentiality, Conflict of Interest, Safeguards
- Level: Level 2
- Topic: Professional and Ethical Considerations
- Series: NOV 2018
- Uploader: Dotse