An audit firm's senior manager's spouse holds a direct material financial interest in an audit client. Which of the following independence safeguards would be most effective in mitigating this threat to independence?

Question: An audit firm's senior manager's spouse holds a direct material financial interest in an audit client. Which of the following independence safeguards would be most effective in mitigating this threat to independence?

Answer options:

• The senior manager is removed from the engagement team.
• The audit client is informed of the financial interest. ✅ The spouse sells their financial interest before the audit commences.
• The audit committee reviews the independence declaration.

Correct answer: The spouse sells their financial interest before the audit commences.

Explanation: As per Canadian independence standards, a direct material financial interest held by a close family member (like a spouse) of an engagement team member requires immediate divestment of the interest to eliminate the self-interest threat, or the individual must be removed from the engagement.