With reference to guidelines issued by ICPAK, the following are the areas of risk that may compromise the work of an external auditor. The auditor needs to use the guidelines as references to avoid being unduly dependent on a single client;
i) Fees
Recurring fees paid by a client to an audit firm should not exceed 15% of its gross recurring income. Note the client should be a firm or a group of connected firms.
ii) Beneficial shareholding
An auditor should generally refuse an appointment by a client in which he has beneficial interest in shares and investments, amounting to 5% or more.
iii) Loans
An auditor should not make loans to or receive loans from a client.
iv) Family & Other Personal Relationships
An auditor should refuse appointment by a client in which an employee is closely related (connected with a partner or staff member in the firm).
v) Undue Hospitality
An auditor should instruct his staff not to accept goods or services from the client, unless they are availed at market prices. He should shum from excess generosity from the client.
vi) Provision of other services
The auditor can only provide services related to routine clerical functions or services of an emergency nature. He should not perform management functions to make management decisions.
vii) Commission
The auditor should not pay a commission to obtain a client, nor should his employees do so to obtain clients for him.
viii) Overdue Fees
Should overdue fees, aggregated with current assignment fees be significant enough to amount to a loan, the auditor independence could be jeopardized.
ix) Voting rights
Where a partner or staff owns shares in any capacity in an audit client, he should not vote at any general meeting in the company in relation to appointment, removal or remuneration of auditors.
