ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is a "self-interest threat" in accounting?

1. The potential for personal gain influencing professional judgement

2. A risk of losing a client relationship

3. An obligation to report financial discrepancies

4. The challenge of balancing client needs with ethics

The correct answer is: The potential for personal gain influencing professional judgement

A "self-interest threat" in accounting refers to a scenario where a professional's personal interests or motivations may improperly influence their judgment or actions. This type of threat arises when an accountant could benefit personally from their decisions or actions taken on behalf of a client or the firm. For example, if an auditor holds shares in a company they are auditing, their desire to see the stock perform well could lead them to overlook issues or misrepresent findings in the audit report. This concept is crucial within the framework of ethical standards in accounting, as professionals are expected to act in the best interests of their clients, stakeholders, and the public. Organizations often implement controls and guidance to identify and mitigate self-interest threats to maintain the integrity and objectivity of financial reporting and auditing processes. In contrast, the other options presented touch on important aspects of the accounting profession but do not directly define a self-interest threat. For instance, the risk of losing a client relationship is more about business sustainability, while the obligation to report financial discrepancies refers to ethical responsibilities without indicating personal motivations. Additionally, balancing client needs with ethics speaks to the broader challenge of maintaining professional integrity but does not specifically address how self-interest can undermine that integrity.