What are Safeguards?

What are Safeguards?

Safeguards are actions or measures that reduce or remove ethical threats so that the auditor can still comply with the five fundamental principles and remain independent.

If, after applying safeguards, the threat is still too serious, the auditor must:

• Not accept the engagement, or
• Resign / withdraw from the engagement.

Mini example

• Threat: Audit partner’s brother is the CFO of the client.
• Safeguard: Replace that partner with another partner who has no family relationship.
• If the firm cannot do that → they should not take the audit.

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2. The Basic Thinking Process

1. Identify the threat
   • Is it self-interest? self-review? advocacy? familiarity? intimidation?
2. Evaluate how serious it is
   • Would a reasonable third party think independence is affected?
3. Apply safeguards
   • From the firm, from the engagement, or from the client’s systems.
4. Decide
   • If threat is now at an acceptable level → continue.
   • If not → refuse or resign