What type of threat to independence is presented when litigation is likely between the assurance firm or a member and the assurance client?

The correct answer is the self-interest threat. This type of threat to independence arises when there are financial or other personal interests or relationships that could influence a member’s objectivity in performing an audit. In the context of litigation, if there is a likelihood of potential legal disputes between the assurance firm and the client, the auditors may have a vested interest in protecting their own position or avoiding potential financial loss. This personal interest could compromise the objectivity required for an unbiased audit, leading to a self-interest threat.

In the case of litigation, the stakes become personal, which can create an ethical dilemma for auditors. Their judgment might be clouded by a desire to favor the client's position to mitigate the potential negative impact of the lawsuit. This illustrates a clear conflict between serving the client's interests and the duty to provide an independent and fair audit opinion.

Other threats like intimidation or advocacy do not directly arise from the presence of litigation. Intimidation threats involve coercive pressures that might discourage an auditor from acting independently, while advocacy threats occur when an auditor is seen to be promoting a client's interests to the detriment of impartiality. Self-review threats could arise if an auditor is in a position to review their own prior work but are less relevant in the context of litigation