Explain how CPAs should evaluate risks to integrity and objectivity when considering providing gifts to audit clients and/or client management or accepting risks from them.Gifts made or received, in particular, may cloud audit judgment and impair independence. They can compromise objectivity and integrity because of the size and/or importance of the gift and the purpose of giving it or receiving it from the client. To avoid a conflict of interest that may impair integrity, objectivity and independence, the following guidelines should be followed.If the audit is completed, the first question is whether the acceptance of the gift might make it appear to a reasonable observer that the gift is intended to influence the audit opinion. If so, that would create an undue influence threat and

Question

compromise integrity and objectivity. Also, it could be perceived as an advance payoff for future audit opinions. The influence does not have to be immediate. Beyond that, an important issue to consider is: Would acceptance violate any laws, regulations, or firm policies. If so, acceptance would create a threat that cannot be reduced or eliminated through any safeguards. If not, consider the following: What is the nature, value, and intent of the gift? 
Is it more than clearly inconsequential? 
 Is it reasonable in the circumstances? 
Is it standard practice to accept or reject such gifts? 
Does the client expect a "quid pro quo?" 

What will be an ideal response?

Answer 1

From an ethical perspective, the best way to approach the issue is first, apply the smell test. Second, evaluate whether acceptance is consistent with your values and those of the firm. Third, ask whether you would be comfortable explaining why you agreed to accept the gifts if you were questioned by a superior or a newspaper reporter?

It is never wise to potentially compromise your reputation and trust others place in you, so the safe way to deal with such gifts is to decline them. Thus, you will not have to explain them away at a later date.