The document presents 10 scenarios involving an external audit manager's audit of Dudley Ltd and asks the manager to determine if there is a significant threat to their independence in each case and what action they would take. The scenarios include invitations to football matches, requests to prepare draft accounts or lead contract processes, promises of bonuses, employment of relatives, and requests to act as an expert witness. The manager must consider threats to independence and appropriate actions for each situation.

1. Test your ethics
You are the external audit manager
responsible for the audit of Dudley
Ltd. For each of the following
scenarios:
 Is there a significant threat to your
independence?
 What action would you take in each
case?
Exercise
Audability Limited
1

2. Question 1
The Director of Finance invites you to
attend the FA Cup Final

Significant threat? Yes /No

Your action?
Audability Limited
2

3. Question 2
The Chief Accountant asks you to
prepare the draft accounts.

Significant threat? Yes /No

Your action?
Audability Limited
3

4. Question 3
The Audit Chair promises that if the
audit is completed a month early, he
will pay the audit team a 20% bonus.

Significant threat? Yes /No

Your action?
Audability Limited
4

5. Question 4
The Chief Executive offers to take the
audit team out to a working lunch at
a nearby Italian chain restaurant.

Significant threat? Yes /No

Your action?
Audability Limited
5

6. Question 5
The Company employs your brother
in law as its new Head of Finance.

Significant threat? Yes /No

Your action?
Audability Limited
6

7. Question 6
The Company employs your son as a
driver in its vehicle fleet.

Significant threat? Yes /No

Your action?
Audability Limited
7

8. Question 7
The audit partner in your firm, who
you currently report to, joins Dudley
Ltd as its new Director of Finance.

Significant threat? Yes /No

Your action?
Audability Limited
8

9. Question 8
Looking back at previous audit files,
you are shocked to realise that this is
the tenth year the current
Engagement Partner has spent as
auditor of Dudley Ltd.
 Significant threat? Yes /No
 Your action?
Audability Limited
9

10. Question 9
Dudley Ltd is about to outsource its
payroll service. It asks you to lead the
contract award process.

Significant threat? Yes /No

Your action?
Audability Limited
10

11. Question 10
Dudley Ltd is in dispute with HMRC
over its tax liabilities. It asks you to
appear as an expert witness.

Significant threat? Yes /No

Your action?
Audability Limited
11