Reference no: EM132606659

Question - You are a manager in the audit firm of JT & Co; and this is your first time you have worked on one of the firm's established clients, Pink Co. The main activity of Pink Co is providing investment advice to individuals regarding saving for retirement, purchase of shares and securities and investing in tax efficient savings schemes. Pink is regulated by the relevant financial services authority.

You have been asked to start the audit planning for Pink Co, by Mrs Goodall, a partner in JT & Co. Mrs Goodall has been the engagement partner for Pink Co, for the previous six years and so has a sound knowledge of the client. Mrs Goodall has informed you that she would like her son Simon to be part of the audit team this year; Simon is currently studying for his first set of fundamentals papers for her ACCA qualification. Mrs Goodall also informs you that Mr Supper, the audit senior, received investment advice from Pink Co during the year and intends to do the same next year.

In an initial meeting with the finance director of Pink Co, you learn that the audit team will not be entertained on Pink Co's yacht this year as this could appear to be an attempt to influence the opinion of the audit. Instead, he has arranged a day at the horse races costing less than two fifth's of the expense of using the yacht and hopes this will be acceptable.

JT & Co have done some consultive work previously and the invoice is still outstanding.

Required -

i) Explain the ethical threats which may affect the auditor of Pink Co.

ii) For each ethical threat, discuss how the effect of the threat can be mitigated.