When a firm performs valuation services for an audit client, which independence threat may arise?

When a firm performs valuation services for an audit client, a self-review threat may arise due to the nature of the services provided. This threat occurs when auditors are in a position to review their own work. If the valuation services involve methodologies or estimates that are subsequently subject to auditor review during the audit, the auditor may unintentionally lack objectivity when evaluating the reasonableness of those valuations or when assessing any related financial statements.

For instance, if an auditor's firm performs a valuation of certain assets, and later, during the audit, the same auditors evaluate the financial statements that include those valuations, it creates a scenario where they are assessing their previous work. This situation compromises the independence necessary for an unbiased audit opinion because the individual who prepared the work is now also responsible for assessing its accuracy.

In this context, self-review threats are particularly crucial to consider because they directly impact the auditor's ability to maintain impartiality and integrity in their assessments.