Ethical Considerations

Threats to the Fundamental Principles

Five Threats

Circumstances may arise that create threats to compliance with the fundamental principles. There are five recognised threats:

1. Familiarity Threat

Occurs when, because of a close personal relationship, an accountant becomes too sympathetic to the interests of others.

Example: The accountant has a close family or personal relationship with a director or officer of a company for which they prepare the financial statements.

2. Self-Interest Threat

Occurs where a financial or other personal interest will inappropriately influence the accountant's judgement or behaviour.

Example: An accountant has a financial interest in, or has made a loan to, a company for which they prepare the financial statements.

3. Intimidation Threat

Occurs when an accountant may be deterred from acting objectively because of real or perceived threats.

Example: An accountant is threatened with demotion or dismissal because they disagree with the way accounting principles have been applied in the company's financial statements.

4. Self-Review Threat

Occurs when an accountant has to re-evaluate a judgement or data that they have previously made or produced.

Example: An accountant is involved in the audit of financial statements that were prepared by themselves or the firm that employs them.

5. Advocacy Threat

Occurs when an accountant promotes a position or opinion to the point that their objectivity may be compromised.

Example: An accountant promotes shares in a company for which they are responsible for preparing the financial statements.

Summary Table