What is meant by threats to Fundamental ethical principles in auditing?

To bound auditors around the world to achieve objectives of engagement effectively and also providing users of financial statements with reasonable assurance and making them responsible for other aspects of the profession auditors have to abide by the requirements of code of ethics. Principles laid out in code of ethics are also know as fundamental ethical principles and auditor is required to assure all such principles are fulfilled. Fundamental principles include honesty or integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

However, during the practice while carrying requirements of engagement auditors may face or they expect to face such situations when the will not be able to fulfill ethical requirements. Such obstructions are called threats to fundamental principles. Although threats can make many different shape but broadly they can be classified in FIVE categories:

Self-interest threat arises when stake of auditor or stake of any immediate or close family member of auditor is involved in the entity and thus he might cause the auditor to violate multiple ethical requirements.

For example if auditor has investment in the same company he is auditing and issuing adverse report will also affect his investment and this might provoke auditor not report objectively.

Self-review threat arises when auditor is asked to examine or report on his own assessment, opinion, judgement or work and thus he is basically self reviewing his work. Its like asking student to assess his own exam script. Such situations may push auditor to give biased evaluation just to save reputation even if previous judgement was wrong.

For example, under a separate arrangement auditor gave the evaluation of internal control system as effective. Now during the audit it is found internal control system is not that effective as was expected. As new evaluation is suggesting otherwise basically nullifying previous evaluation of the same person. Auditor may find it discrediting and might not report objectively.

In other usual case is where auditor has previously provided some accounting services to the entity and later same person is auditing the accounting records. In such situations he might be biased in finding errors as this will discredit his independent services.

Advocacy threat arises when auditor (most of the time unintentionally) supports the opinion or position (of the client most of the time) to the extent that it is not supported with relevant evidence or simply auditor supported the opinion beyond the degree of objectivity.

For example bank asked client to file an auditor’s report on specific matters for loan contract and in that report auditor mentioned sound financial position of the entity without sufficient appropriate evidence. Or worse, auditor stated in the report that entity is financial sound when its not the case in actual.

Familiarity threat arises when auditor due to the nature of relation with the other party become too sympathetic that it compromised the objective requirement of code.

For example such situations arise when client is close friend, relative or family member of the auditor.

However, point must be noted that familiarity threat is different from self-interest threat because in familiarity threat auditor feels sympathetic for others’ interests whereas in self-interest threat auditor weighs his own interest above ethical requirements of the code.

Intimidation threat arises when auditor, directly or indirectly, threatened physically or mentally to keep him from working objectively.

For example auditor is given a threat that if he reports objectively then audit fee will not be paid or subsequent audits with the auditor will be cancelled. It might take the shape of physical threats like harming family members or use of coercion on auditor. To learn more in detail about intimidation threat read: What is intimidation threat in auditing?


  1. Nice article ? keep growing

  2. The principles of ethical behaviors should be followed by all members of the accountancy field to maintain a good reputation of the profession so as not to bring any disrepute to the profession.

  3. Integrity, Objectivity, confidentiality, competence and professional behavior. These principles a professional accountant have to follow, there are different other principles under objectivity too.

  4. Five Fundamental principles of ACCA code’s of ethics are;
    Integrity, Objectivity, confidentiality, competence and professional behavior. These principles a professional accountant have to follow, there are different other principles under objectivity too.

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