By studying the above case the following issues are been taken into account. Bruce Tegan who is ex- partner of the Maitland Partners so this may give rise to the conflict as the whole PMC Ltd.’s internal control is been handled by the Bruce Tegan so this may adversely affect the working of the Maitland partner as they may face some issues with the auditing of the PMC Ltd. 

One more reason behind the conflict can be that the old audit engagement partner named Caryn marks was now again involved with the new audit engagement partner. This is not possible as the engagement or involvement of the auditor who has done the audit for last five years without the expiry of his next two years after his engagement period as an auditor. 

The following report is been provided with the study of the above case.


With reference to the above case of PMB Security Ltd, some of the issues which could give rise to the subsequent threats to the independence of Maitland Partners in conducting the audit of PMB Security Ltd and which need to addressed to avoid conflicts are-

1. Chief Financial Officer (CFO), Bruce Tegan, who is an ex-partner of Maitland Partners.  Tegan took up the appointment as CFO for PMB Security Ltd in November 2018, after spending two years in early retirement.  During his last year at Maitland Partners, Tegan had been the review partner on the 2016 PMB Security Ltd audit. that does give rise to a Conflict of Interest. 

2. PMB Security Ltd.’s internal audit department which reports to the Chief Financial Officer , Bruce Tegan, who is an ex-partner of Maitland Partners.  The entire internal audit department reports directly to Bruce Tegan which is also a potential threat since he is in a position to control the findings of the audit team.

3. There is no mention of any other independent director/Chairman who would also be a participant in this activity.

Though the CFO does not have any vested interest with Maitland Partners, he is in touch with Scott Turner to who he was a mentor. Scott is also scheduled to be promoted as a partner for signing off the audit. This gives rise to Conflict of Interest since both individuals are in a powerful position to control the findings.

4. Since the PMB Security Ltd’s information technology the new manufacturing system of costing was implemented by the consultants from the software company along with (IT) department.  Key operational staff of PMB Security Ltd, along with the consultants of the software supplier was significantly engaged in the stages of implementation, training, testing as well as the selection. 

Hence the situation requires an External IT audit for this purpose which would have a specific set of requirements as per the specific country.

5. Caryn Marks has been the engagement partner on the PMB Security Ltd’s audit for the past five years.  Caryn security/IT industry expertise, intended to be as a review partner when the rotation of the audit took place next year to a new audit partner but should also have working knowledge of the financial statements and other operations associated with developing the inventory costing system. All aspects should be considered in the audit process.

7. PMB Security Ltd installed completely a new and an innovative method for measuring the inventory. This implementation of the new method resulted into the abolishing of the old system that was used earlier by the organization.  There was a difficulty faced by the earlier method as it could not fulfil the company’s requirements of broader reporting.


A detailed analysis is required to be understood on how the new system is proving to be effective in tiding over the difficulties of the previous system. The expenses and cost savings have to be correctly determined.

8. The respective Financial Statements also have to be thoroughly examined since the CFO would be ultimately signing off on those statements.

9. Rules of  “Code of Ethics” section 220 of APES 110  related to “Conflict of Interest” is applicable to the issues identified which states that- Conflicts of interest gives rise to the threats to compliance with a number of fundamental principles, such as confidentiality, professional behaviour and objectivity. Conflicts of interest may arise because of relationships with the relationship of clients or third parties or by business interests.

If conflicts of interest are known, Members who is in practice is required to apply appropriate safeguards to remove them or reduce them to a level which is acceptable. When the identified threat cannot be reduced or eliminated up to the level which is accepted than the member shall not accept that and should resign from the engagement that is conflicting.

Based upon the circumstances which give rise to the conflicts, one of the safeguarded applications mentioned below is necessary:

(a) Notifying the client of the Firm‘s business interest or activities that may represent a conflict of interest and obtaining their consent to act in such circumstances; or

(b) Notifying all known relevant parties that the Member in Public Practice is acting for two or more parties in respect of a matter where their respective interests are in conflict to one another  and to have their consent for the act; or

(c) Notifying the client that the Member in Public Practice does not act exclusively for any one client in the provision of proposed services (for example, in a particular market sector or with a particular service) and taking their consent.

Further safeguards that can be used for declining the “Conflict of Interest” Threat-

(a) Separate Teams of engagement to be formed;

(b) Prevention to information by not letting it to accessed by everyone (e.g., secure data filing, confidential, strict separation of teams);

(c) For security and confidentiality proper guidelines and rules to be issued to the engagement team;

(d) Confidentiality agreements to be utilized which were signed by partners and the employees of the Firm; and

(e) Review of the application on regular basis by a person on senior position and is not engaged with the auditor’s engagement into the firm.


From the discussions carried on in above report, it can be recommended that if the threats become so significant and there seems no way to reduce or eliminate them, then the relationships and circumstances due to which these threats are originating shall be eliminated. 

The person who has found guilty shall discontinue their professional services. If that person be a member in practice then engagement shall be resigned and if a member in service than the resignation shall be filed with the organization.

Safeguards -

When it is realized that the threats which are occurring are above the level of acceptance then safeguards become necessary. The threats are acceptable up to the level at which the third party is ready to weighing all specified facts and can conclude the conditions of the members and they then realise that  there is no compromise taken up with the fundamental principles. 


APSEB. (2010, DECEMBER). Retrieved from

Australia, C. (2019). Retrieved from (2019). Retrieved from


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