Fundamental Principles MIA By Law

Scenario: Alia, the audit partner for Asmatar Bhd, is also acting as the audit partner for Titanium Sdn Bhd. Asmatar Bhd has initiated a proposal to renew its procurement contract with Titanium Sdn Bhd for the next five years, and Titanium Sdn Bhd has asked Alia for advice on the matter.

• Self-review threat

• Advocacy threat

• Familiarity threat

• Intimidation threat

Answer explanation

Correct Answer: B) Advocacy threat
Explanation: Alia’s role as an advisor to Titanium Sdn Bhd while auditing Asmatar Bhd creates an advocacy threat, as she may be perceived as supporting the interests of Titanium Sdn Bhd over objectivity in the audit.

2. Auditor's Shareholding in Client Company

Scenario: Syamil, an audit manager responsible for the audit of Asmatar Bhd, owns 1,000 units of ordinary shares in the company (less than 1% of the total shares issued). Alia only discovered this after the engagement had begun.

Which type of threat does this pose?

• Self-interest threat

• Familiarity threat

• Intimidation threat

• Advocacy threat

Answer explanation

Correct Answer: A) Self-interest threat
Explanation: An auditor holding shares in an audit client creates a self-interest threat, as financial gain from the client’s performance may compromise audit objectivity.

3. Employment Offer to Auditor's Family Member

Scenario: Adiba’s younger brother, Qayyum, was offered an engineering position at Asmatar Bhd with a salary above the industry average.

What is the ethical concern in this scenario?

• Self-interest threat

• Familiarity threat

• Advocacy threat

• None of the above

Answer explanation

Correct Answer: B) Familiarity threat
Explanation: The employment offer to a close family member of the audit partner creates a familiarity threat, as Adiba may become too sympathetic to Asmatar Bhd’s interests, compromising audit independence.

4. Exchange of Audit Fees for Goods

Scenario: Moulder Sdn Bhd, an audit client, has not paid audit fees for three years. To settle the outstanding fees, they offered AA & Co office furniture worth only 70% of the total debt. The partner accepted the offer.

What is the primary ethical issue?

• Advocacy threat
  

• Self-interest threat

• Intimidation threat

• None of the above

Answer explanation

Correct Answer: B) Self-interest threat
Explanation: Accepting goods instead of monetary payment, especially when undervalued, compromises independence as AA & Co may become financially dependent on the client.

MAQ Sdn Bhd contributes 35% of AA & Co’s annual income. During the audit, material misstatements were found, but management refused to comply with financial reporting requirements and threatened to change auditors if AA & Co issues a qualified audit report.

Which threat is most applicable?

• Self-interest threat

• Intimidation threat

• Familiarity threat

• Self-review threat

Answer explanation

Correct Answer: B) Intimidation threat
Explanation: The threat to replace AA & Co if they qualify the audit report constitutes intimidation, which may pressure the firm into compromising its independence.