Ethical threats - part 2

In this lesson

1. 0:00 Gifts and hospitality threats explained
2. 1:15 Managing overdue client fees
3. 2:51 Referral fees and compensation risks
4. 4:51 Key audit partner restrictions
5. 5:38 Employment offers and self-interest
6. 6:41 Contingent fees prohibition
7. 8:03 Carlisle Limited fee dependence scenario

About this lesson

You'll explore why these situations compromise independence, what safeguards auditors must put in place, and how to apply these principles to real-world scenarios. This content is essential for AA (Audit and Assurance) papers and forms part of the ethical framework tested across ACCA and CIMA qualifications. The video walks through six key ethical threats in detail. Gifts and hospitality can create familiarity and self-interest if not properly declined; overdue client fees create a direct financial incentive to act inappropriately; referral fees for non-audit services may compromise judgement if team members are compensated or promoted based on sales; employment offers from clients pose obvious bias risks; and contingent fees—where payment depends on a specific audit outcome—are fundamentally incompatible with independence. For each threat, you'll learn the specific safeguards required, from disclosure and advance approval through to removal from the engagement team and independent review of work. The lesson concludes with a practical scenario involving a growing audit client that now represents 19% of firm fee income—exceeding the 15% threshold in the code of ethics. You'll see how to spot overdependence, recognise the self-interest and intimidation threats it creates, and determine what disclosure and review procedures must follow. This structured approach to ethical reasoning will help you answer both objective test questions and case study scenarios with confidence.

Duration: 10m