When a practicing professional in practice faces a conflict of interest during performing a professional service, explain the instances in which conflict of interest may arise and what steps an auditor shall take to iden

A practicing professional in practice may face a conflict-of-interest situation while performing a professional service. A conflict of interest creates a threat to objectivity and may create threats to the other fundamental principles. Such threats may be created when: The professional provides a professional service related to a particular matter for two or more clients whose interests with respect to that matter are in conflict; or The interests of the professional with respect to a particular matter and the interests of the client for whom the professional provides a professional service related to that matter are in conflict. An auditor shall not allow a conflict of interest to compromise professional judgment. Examples of situations in which conflicts of interest may arise include: Transaction advisory service: Providing a transaction advisory service to a client seeking to acquire an audit client of the firm, where the firm has obtained confidential information during the course of the audit that may be relevant to the transaction. Auditing competitive clients: Auditing two clients at the same time who are competing to acquire the same company where the audit report might be relevant to the parties' competitive positions. Auditing clients in legal dispute: Taking audit assignment of two clients regarding the same matter, who are in a legal dispute with each other Audit report for Licensor and License: Providing an audit report for a licensor on royalties due under a license agreement when at the same time advising the licensee of the correctness of the amounts payable. Before accepting a new client relationship, engagement, or business relationship, an auditor shall take reasonable steps to identify circumstances that might create a conflict of interest, including identification of: The nature of the relevant interests and relationships between the parties involved; and The nature of the service and its implication for relevant parties. It is expected that the Auditor shall not have any conflict of interest with the Auditee. If the Auditor has any such interest, it is the duty of the Auditor to disclose such interest/ conflict of interest to the Auditee before accepting the Audit Engagement.