Reference no: EM132204915

Write answers to each of the five (5) situations described below addressing the required criteria (i.e. 1 & 2) in each independent case. You may use a tabulated format if helpful having “Threats”, “Safeguards” and “Objective Assessment” as column headings.  

Bret Hart has been appointed as a junior auditor of Black & White (BW). One of his first tasks is to review the firm’s audit clients to ensure that independence requirements of APES 110 (Code of Ethics for Professional Accountants) are being met. His review has revealed the following:

(a) Neptune Limited is one of BW’s audit clients. Mark is a partner in BW and practices in the same office as Bruce, who is the lead engagement partner for the Neptune Limited audit. Mark is not involved in the Neptune Limited audit himself. Mark’s wife Michelle owns shares in Neptune Limited.

(b) Mariah Parker is an assurance manager with BW and it has just been decided to allocate her to the audit of Organic Foods Limited (OFL). Mariah’s financially independent daughter, Juliette, has recently purchased a very large parcel of shares of significant value in OFL.   

(c) BW has recently been approached by Pixcom Limited (PL) to conduct its audit. The accountant at PL, Charlotte Flair, is the daughter of Ric Flair, who is one of the audit partners at BW. Being aware of Ric’s relationship with Charlotte, BW will not be assigning Ric to the audit team of PL.

(d) Jack, the current senior manager on the audit of Burj Steel (BS) Limited which specializes in the production of mining equipment, has just entered into a business venture (ZZ Motors) with the CFO of BS Ltd, whereby they are both equal partners in a business retailing motor vehicles. Jack has informed you that this is not a problem since the 2 entities (BS Ltd and ZZ Motors) are in different non-competing industries.   

(e) Awesome Machineries Limited (AML) has been an audit client of BW since the past two years. BW has recently completed a review of internal controls for AML. BW has been requested by AML to take responsibility to implement a new software system that will form a significant part of internal controls over AML’s financial reporting process and run a three hour training session for its accounting staff.   

Required:

For each of the independent situations above, and using the conceptual framework in APES 110 (Code of Ethics for Professional Accountants), answer the following questions:

1. Identify potential threat(s) to independence & recommend safeguards (if any) to reduce the independence threat(s) identified.

2. Provide an objective assessment of whether audit independence can be achieved