Scenario of a Case Study: Mr. X is the auditor at XYZ.

The auditor assessed the internal controls

and concluded that the internal control system is reliable. Later, It was discovered that the auditor's
judgment was wrong and the internal control system is not as successful as was anticipated during
the audit. As the current assessment indicates that the same person's prior assessment would
effectively be annulled. It may be discrediting to auditors and does not report fairly. In some similar
cases, Mr. X has historically supplied the company with some accounting services and then, Mr. X
checks the accounting documents. He may be misguided in identifying mistakes in such cases as this
would undermine his independent services.

Answer a.

The threat that is created in the above case is:

Self-review threat: Threat to self-review occurs when the auditor is asked to evaluate or reflect on
his evaluation, viewpoint, decision, or function, and therefore self-examines his performance. Such
circumstances will force the auditor to give biased appraisal just to preserve credibility even though
the previous decision was incorrect.
Fundamental principles affected here are:

 Integrity 
 Professional competence and due care 
 Confidentiality 
 Professional behavior

Answer b.

The threat encountered by the auditor in the given case can be eliminated or reduced by applying
appropriate safeguards.
If the auditor finds that the established risks are at a stage at which compliance with the fundamental
principles is threatened, protections are provided. In other words, protections should be implemented
to remove the risks or reduce them to an appropriate level where possible. Protective initiatives fall
into two broad categories:

 Safeguards provided by law, statute, or policy - these can include, for example, the provisions
of ethical practice, rules on corporate governance, and auditors' qualifications and
education.
 Safeguards of working environments - Two types of organizational protections - those that
are firm-wide, and those that are particular to engagement.