Under GAGAS, what are the threats to independence that the auditor should be aware of?
Generally Accepted Government Accounting Standards (GAGAS) will sustain the same independence requirements as the AICPA Code of Professional Conduct which in turn, indicates that similar threats to independence will exist.
Per the GAGAS framework, the auditor should meet the following requirements as they pertain to independence:
a) Identify threats Independence
b) Evaluate the significance of those threats that have been previously identified, both individually and in the aggregate; and
c) Apply any necessary safeguards to remove those threats to independence or minimize them to an acceptable level in which independence would no longer be impaired.
1) Familiarity threat – is the threat that aspects of a relationship with management or personnel of an audited entity, such as a close or long relationship or that of an immediate or close family member, lead an auditor to take a position that is not objective.
2) Self-interest threat – is a threat that a financial or other interest will inappropriately influence the auditor’s judgment or behavior.
3) Management participation threat – is the threat that results from an auditor’s taking on the role of management or otherwise performing management functions on behalf of the entity undergoing an audit.
4) Self-review threat – is the threat that an auditor or an audit organization that is provided non–audit services will not appropriately evaluate the results of previous judgments made or services performed as part of the non–audit services when forming a judgment significant to an audit.
5) Bias threat – is the threat that an auditor will, as a result of either political, ideological, social, or other convictions, take a position that is not objective.
6) Undue influence threat – is the threat that external influences or pressures will impact in auditor’s ability to make independent and objective judgments.
7) Structural threats – are threats that an audit organizations placement within a government entity, in combination with the structure of the government entity being audited, will impact the audit organizations ability to perform work and report results objectively.
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