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Stuck in the middle with you

In this month's questions and answers. John Selwood focuses on some types of conflict of interest that any audit firm might experience.

All auditors are aware of the ICAEW Code of Ethics and the need to comply with its fundamental principles of integrity; objectivity; professional competence and due care; confidentiality; and professional behaviour.

Auditors are also aware that compliance with these fundamental principles may be threatened by a broad range of circumstances and relationships, and that they are responsible for assessing these threats and for implementing safeguards where they are significant.  In this edition, Audit clinic considers some potential conflict of interest threats, their assessment and decisions around if, when, why and how appropriate safeguards may – or may not – be applied.


A partner in my firm has been approached by a new client to the firm (let’s call it B Ltd) to do due diligence on a potential business acquisition of A Ltd. My firm audits A Ltd. How should the firm address potential conflicts of interest? It is entirely possible, maybe even probable, that the conflicts that arise here will be so significant that they cannot be managed with safeguards. For example, the self-interest threat that would arise if, as investigating accountant, you would be requesting access to your own files and signing a hold harmless letter to yourself. There would also be a reputational risk of finding errors in your own audit work.

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