Safeguards in Auditing

Safeguards

• Once a threat that is other than insignificant has been identified and evaluated, safeguards should be considered and applied as necessary. If the firm decides to accept or continue the engagement, in spite of the significant threats identified, such decision should be documented including a description of the threats identified and the safeguards applied to eliminate or reduce the threats to an acceptable level.The nature of the safeguards to be applied will vary depending upon the circumstances.
• Consideration should always be given to what a reasonable and informed third party having knowledge of all relevant information including safeguards applied, would reasonably conclude to be unacceptable. The consideration will be affected by matters such as the significance of the threat, the nature of the assurance engagement and the structure of the firm.
• In certain situations, no safeguards are available to eliminate or reduce the threat to an acceptable level. Hence, the only possible actions would be to eliminate the activities or interest creating the threat, or refuse to accept or continue the engagement. 
• Safeguards fall into two broad categories:
• Safeguards created by the profession, legislation or regulation.
• Safeguards in the work environment.
• The firm and the members of the assurance team should should select appropriate safeguards to eliminate or reduce threats, other than those that are clearly insignificant, to an acceptable.

Safeguards created by the profession, legislation, or regulation.

• Includes the following:
• Educational, training and experience requirements for entry into the profession.
• Continuing education requirements.
• Corporate governance regulations.
• Professional standards and monitoring and disciplinary processes. 
• External review of a firm's quality control system.

Safeguards in the work environment.

• It consists of firm-wide safeguards and engagement specific safeguards.
• Firm wide safeguards in the work environment may include:
• Leadership of the firm that stresses the importance of compliance with the fundamental principles.
• Leadership of the firm that establishes the expectation that members of an assurance team will act in the public interest.
• Policies and procedures to implement and monitor quality control of engagements.
• Documented policies regarding the identification of threats to compliance with the fundamental principles, the evaluation of the significance of these threats and identification and the application of safeguards to eliminate and or reduce the threats, other than those that are clearly insignificant to an acceptable level.
• For firms that perform assurance engagements, documented independence policies regarding the identification of threats to independence, the evaluation of the significance of these threats and the evaluation and application of safeguards to eliminate or reduce the threats, other than those that are clearly insignificant to an acceptable level.
• Documented internal policies and procedures requiring compliance with the fundamental principles.
• Policies and procedures that will enable the identification of interest or relationships between the firm or members of the engagement teams and clients. 
• Policies and procedures to monitor and if necessary, manage the reliance on revenue received from a single client.
• Using different partners and engagement teams with separate reporting lines fir the provision of non-assurance services to an assurance client.
• Using different partners and engagement teams with separate reporting lines for the provision of non-assurance services to an assurance client. 
• Policies and procedures to prohibit individuals who are not members of an engagement team from inappropriately influencing the outcome of the engagement.
• Timely communication of a firm's policies and procedures, including any changes to them, to all partners and professional stuff, and appropriate training and education on such polices and procedures.
• Designing a member of senior management to be responsible for overseeing the adequate functioning of the firm's quality control system. 
• Advising partners and professional staff of those assurance clients related entities from which they must be independent.
• A disciplinary mechanism to promote compliance with policies and procedures.
• Publish policies and procedures to encourage and empower staff to communicate to senior levels within the firm any issue relating to the compliance with the fundamental principles that concerns them. 
• Engagement specific safeguards may include:
• Involving an additional professional accountant to review the work done or otherwise advise as necessary.
• Consulting an independent third party, such as a committee of independent directors, a professional regulatory body or another professional accountant. 
• Discussing ethical issues with those charged with governance of the client.
• Disclosing to those charged with governance of the client the nature of services provided and extent of fees charged.
• Involving another firm to perform or re-perform part of the engagement
• Rotating senior assurance team personnel. 
• In addition to the above safeguards, professional accountants in public service may also be able to rely on safeguards that the client has implemented. Safeguards within the client's systems and procedures may include:
• When a client appoints a firm in public practice to perform an engagement, persons other than management ratify or approve the appointment. 
• The client has implemented internal procedures that ensure objective choices in commissioning non-assurance engagements.
• The client has a corporate governance structure that provides appropriate oversight and communications regarding the firm's services.
• Although these safeguards could also reduce the threat to compliance with fundamental principles, it is not possible for professional accountant to rely to these safeguards to reduce threats to an acceptable level. 

The topic regarding safeguards is quite long, but it is made so to make sure that in the end, the opinion expressed on the financial statements is appropriate. Keep on reading my blog!