B a self review threat c no threat to independence d

b
.
A self-review threat.
c. No threat to independence.
d
.
A self-interest threat.
Explanation
Choice "b" is correct. The self-review threat is the threat that an auditor or audit organization that
has provided nonaudit services will not appropriately evaluate the results of previous judgments
made or services performed as part of the nonaudit services when forming a judgment significant
to an audit. The failure to evaluate the fairness of the data used for the actuarial valuation and the
reasonableness of the liability valuation itself represents a self-review threat.
Choice "c" is incorrect. Independence was likely compromised by a self-review threat.
Choice "d" is incorrect. The self-interest threat is the threat that a financial or other interest will
inappropriately influence an auditor’s judgment or behavior. Although the firm has a financial
interest in the service that they performed outside of the audit, the threat is more accurately
characterized as a self-review threat.

Choice "a" is incorrect. Familiarity threat is the threat that aspects of a relationship with
management or personnel of an audited entity, such as a close or long relationship, or that of an
immediate or close family member, will lead an auditor to take a position that is not objective.
The issue is not the familiarity with management, it is the inappropriate reliance on unaudited
work performed by the firm's consultants.
Carlisle & Company is auditing the Town of Dunderhead in accordance with Generally Accepted
Government Auditing Standards (GAGAS) and has determined that no one on the city's staff is
competent enough to maintain and close the accounting records of the city. Believing that he is
performing a service for his client, the audit manager takes possession of the books and records,
posts transactions, develops trial balances and produces audited financial statements in time to
fully comply with statutory filing requirements. The audit manager has created a threat to
independence identified by GAGAS that is defined as: