Understanding the duration of a firm’s tenure with an audit client is crucial in assessing independence and familiarity threats. Let’s delve into the significance of this metric and its implications for audit quality.
Indicator: Tenure: Firm (years) measures the average number of completed years a firm has served as the audit firm for a client.
Purpose: This indicator provides insights into the level of independence or familiarity threat associated with the auditor-client relationship.
How to Interpret the AQI:
Longer Tenure: Poses a greater familiarity threat to independence, as prolonged relationships may lead to complacency or undue sympathy towards the client’s interests.
Shorter Tenure: Indicates less experience and knowledge of the client’s business, potentially impacting the depth of the audit. However, it also mitigates familiarity threats associated with long-term relationships.
IRBA Code Considerations:
Familiarity Threat: Arises from a long or close relationship with a client, potentially compromising the auditor’s objectivity and independence. This threat underscores the importance of vigilance and professional skepticism in maintaining integrity throughout the audit process.
