Familiarity threats are self-evident, and occur when auditors form relationships with the client where they end up being too sympathetic to the…

Familiarity threats: Familiarity threats are self-evident and occur when auditors form relationships with the client where they end up being too sympathetic to the client's interests. This can occur in many ways including: (i) close relative of the audit team working in a senior position in the client company; (ii) former partner of the audit firm being a director or senior employee of the client; (iii) long association between specific auditors and their specific client counterparts; and (iv) acceptance of significant gifts or hospitality from the client company, its directors or employees. Provisions in Companies Act, 2013 regarding rotation of auditors mainly address these very familiarity threats. Such provisions prescribe that auditor is rotated after a certain number of years so that auditors do not become too familiar with their clients.