We should identify and document any threats to independence which may be eliminated through taking specific actions or for which there may be safeguards. Address each of the following threats in relation to the firm and any member of the engagement team.

• Self-interest threats, which may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member,

• Self-review threats, which may occur when a previous judgment needs to be reevaluated by the professional accountant responsible for that judgment,

• Advocacy threats, which may occur when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised (for example, acting as an advocate on behalf of the client in litigation or in arranging financing),

• Familiarity threat, which may occur when, because of a close relationship, a professional accountant becomes too sympathetic to the interests of others, and

• Intimidation threat, which may occur when a professional accountant may be deterred from acting objectively by threats, either actual or perceived.

For each threat, we should evaluate and document whether these threats, considered individually and collectively, are at an acceptable level.

For each threat that is not at an acceptable level, document the actions taken to eliminate them or the safeguards applied to reduce them to an acceptable level. i.e., actions, individually or in combination, that the professional accountant takes that effectively reduce threats to compliance with the fundamental principles to an acceptable level.

Additionally, we may assess whether any cognitive biases needs to be addressed:

Confirmation bias “A tendency to favour data or information that supports preconceived notions, such as about a company’s financial health, which could lead to financial reporting errors.”

Sunk-cost fallacy “A tendency to keep investing in something based on how much has already been invested, such as hesitating to write off certain assets or investments that have lost value, which could lead to inflated balance sheets.”

Groupthink “A phenomenon where a group of people prioritize consensus over critical evaluation of information, such as the collective failure to critically evaluate financial statements or audit procedures. This may lead to incorrect financial reporting.”

Overconfidence bias “A tendency to overestimate one’s beliefs, predictions or ability to perform a task, such as believing that one can accurately estimate financial values or risks. This can lead to overly optimistic or pessimistic financial reporting.”

Anchoring bias “A tendency to rely too heavily on the initial information, or “anchor”, when decision-making, such as assessing financial figures based on previously reported numbers or industry benchmarks rather than on recent reports. This can lead to errors if anchors are invalid or irrelevant”