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Question - You are an audit partner. The accounting manager of FarmNest Pty Ltd, your long-term client, was on maternity leave from the last three months of the year. Farmnest requested you to supply a member of staff on replacement until the accounting manager returned in a year. Richard Sayers, one of your senior audit staff, was assigned to be the replacement. You were happy with this arrangement as it brought significant additional fees to your firm. In addition, with his position and the knowledge he has about FarmNest, Richard will be a valuable member of the audit team for the current financial year's audit.
(i) Identify and explain two potential threats to audit independence and its potential breach of ethical principles.
(ii) For each threat, explain any safeguards that could be put in place to reduce the threat to an acceptable level.
If a CPA firm is being sued for common law fraud by a third party based upon materially false financial statements, which of the following is the best defense.
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