Reference no: EM132560216

You are an audit manager in McKay & Co, a firm of Chartered Accountants. You are preparing the engagement letter for the audit of Ancients, a public limited liability company, for the year ending 30 June 2019. Ancients has grown rapidly over the past few years, and is now one of your firm's most important clients.

Ancients has been an audit client for eight years and McKay & Co has provided audit, taxation and management consultancy advice during this time. The client has been satisfied with the services provided, although the taxation fee for the period to 31 December 2018 remains unpaid.

Audit personnel available for this year's audit are most of the staff from last year, including Mr. Grace, an audit partner and Mr. Jones, an audit senior. Mr. Grace has been the audit partner since Ancients became an audit client. You are aware that Allyson Grace, the daughter of Mr. Grace, has recently been appointed as the financial director at Ancients.

To celebrate her new appointment, Allyson has suggested taking all of the audit staff out to an expensive restaurant prior to the commencement of the audit work for this year.

Required:

Question 1: Identify and explain the risks to independence arising in carrying out your audit of Ancients for the year ending 30 June 2019, and suggest ways of mitigating each of the risks you identify.