Reference no: EM133067040

Question - You are the audit manager in the audit firm of Justin & Co and you are planning the audit for the client, Spencer Ltd. Spencer's core business is providing investment advice to clients on insurance policies, purchase of shares as well as retirement savings. You have started to plan for the audit of Spencer Ltd for the financial year ended 31 December 2020. The engagement partner for Spencer is Mr Wellington and this has been unchanged for the past eight years. In addition, Mr Wellington has mentioned to you that he would like his son, Benjamin to be involved in the audit for Spencer this year as Benjamin is studying for his Degree in Accounting qualifications too.

Mr Wellington also informed you that Tommy Tan, the audit senior for Spencer has received some investment advice from Spencer and is planning to continue doing so next year. During the meeting with Spencer, the finance director, Patrick Low has shared that he has booked a weekend gateway on a cruise ship for the audit team after the audit has been completed. Patrick also recommends that the audit fee for this year should be based on a percentage of Spencer's profits. As Spencer has not paid the audit fee for the previous year, Patrick assured you that they will be paying soon and the audit work should continue. In addition, he trusts that your firm will accept a fixed fee for representing Spencer in a legal dispute regarding the amount of tax payable to the taxation authorities.

Required -

(a) From the information above, identify and explain FIVE (5) ethical threats to the auditor's independence.

(b) For each threat identified in (a), suggest the safeguard(s) to reduce the threat to an acceptable level.

(You should use a TWO (2) column format using the headings 'Threats' and 'Safeguards'.)