Threats to Independence (1 Independence must be in fact and appearance Threats include: - self review threat - Advocacy threat - Adverse interest threat - Familiarity threat - Undue influence threat - Financial self-interest threat - Management participation threat of 2) Exhibit 4.2 Examples of Threats to Threat Self-Review Threat Advocacy Threat Adverse Interest Threat Familiarity Threat Undue Influence Threat Financial Self-interest Threat Management Participation Threats to Independence (2 of 2) Safeguards to counteract threats: Safeguards created by the profession, legislation, or regulation Safeguards implemented by the attest client Safeguards implemented by the firm Independence Example Preparing source documents used to generate the client's financial statements. Promoting the client's securities as part Of an initial public offering or representing a client in U.S. tax court. Commencing, or the expressed intention to commence, litigation by either the client or the CPA against the other. A CPA on the attest engagement team whose spouse is the client's CEO. A threat to replace the CPA or CPA firm because Of a disagreement With the client over the application Of an accounting principle. Having a loan from the client, from an officer or director Of the client, or from an individual Who owns 10 percent or more of the client's outstanding equity securities. Establishing and maintaining internal controls for the client. Safeguards Examples of Safeguards Threat Source ot the Safeguard Created by the profession, legislation, or regulation Implemented by the client Implemented by the firm Professional resources, such as hotlines, for consultation on ethical issues. The client has personnel with suitable skill, knowledge, or experience who make managerial decisions about the delivery of professional services and makes use of third-party resources for consultation as needed. The tone at the top emphasizes the client's commitment to fair financial reporting and compliance with the applicable laws, rules, regulations, and corporate governance policies. Policies and procedures are in place to achieve fair financial reporting and compliance with the applicable laws, rules, regulations, and corporate governance policies. Policies and procedures are in place to address ethical conduct. Policies are in place that bar the entity from hiring a firm to provide services that do not serve the public interest Or that would cause the firm's independence or objectivity to be considered impaired. Policies and procedures addressing ethical conduct and compliance with laws and regulations.