Familiarity Threat in Auditing

Familiarity threat occurs when by virtue of a close relationship with a client, its directors, officers, or employees, a firm or a member of the engagement team becomes too sympathetic to the client's interest.

Here are some examples of the circumstances that may create this threat but are not limited to:

  • A member of the assurance team having an immediate family member or close family member who is a director or officer of the assurance client. 
  • A member of the assurance team having an immediate family member or close family member who, as an employee of the assurance client, is in position to exert direct and significant influence over the subject matter of the assurance engagement. 
  • A former partner of the firm being a director, officer of the assurance client or an employee in a position to exert direct and significant influence over the subject matter of the assurance engagement. 
  • Long association of a senior member of the assurance team with the assurance client. 
  • Acceptance of gifts or preferential treatment, unless the value is clearly insignificant, from the assurance client, its directors, officers, or employees.

Familiarity threat can also be avoided when the auditing team is having job rotations or is not assigned to audit the same client for a long period of time. Auditors, too are humans, and they are also susceptible to developing ties with clients. I hope you have learned something new today. Keep on visiting my blog!. 

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