Reference no: EM133053832

Question - You are Ken Manlapaz, an audit senior with the firm David, Associates & Co. You are planning the financial report audit of Sweet Tooth Ltd, a manufacturer of confectionery. The following issues have arisen:

1. John Stick, the Finance Manager of Sweet Tooth, was ill for three months of the year and Elaine David, the engagement partner, received a request from Sweet Tooth to supply a member of staff on secondment until John was well. Elaine was only too happy to help and Danica Soriano, a member of David, Associates & Co.'s audit staff was seconded to Sweet Tooth for three months. Sweet Tooth was happy with this arrangement and Elaine enjoyed the additional fees this created for the firm. As a result of Danica's secondment and the knowledge she now has about Sweet Tooth, Elaine is suggesting that she will be a valuable member of the audit team for the current financial year's audit.

2. Staff of Sweet Tooth are entitled to visit the company shop where defective confectionery products or 'seconds' that do not make it past the company's quality control processes are available for purchase at a significant discount to normal retail prices. Sweet Tooth has in the past invited the audit team to enjoy this benefit while it is attending the company during its audit visit.

3. You are aware that Sweet Tooth's Finance Director, Sheila Bognot, plays on the same softball team as Elaine David and recently spent a week with the team on a tour of Vanuatu.

REQUIRED -

a. Identify and explain the fundamental principles of the Code of Ethics for Professional Accountants.

b. For EACH of the situation above, explain the ethical threat to auditor's independence and identify how they might be avoided.