THE FOLLOWING SCENARIO RELATES TO QUESTIONS 1-5
You are an audit manager of Ali & Co and have just been assigned the audit of Stark Co (Stark). Stark, a listed company, provides investment advice to individuals, and is regulated by the relevant financial conduct authority.
Mr Day, a partner in Ali & Co, has been the audit engagement partner for Stark for the previous nine years and has excellent knowledge of the client. Mr Day has informed you that he would like his daughter Zoe to be part of the audit team this year; Zoe is currently studying for her first set of fundamentals papers for her ACCA qualification.
In an initial meeting with the finance director of Stark, you learn that the audit team will not be entertained on Stark’s yacht this year, instead, he has arranged a balloon flight costing less than one-tenth of the expense of using the yacht and hopes this will be acceptable.
Ali & Co has always carried out tax advisory work for Stark. The tax advisory services do not have an impact on the figures reported in the financial statements. The finance director has stated that he feels strongly that the firm that offers taxation services this year should charge a fee which is based on a percentage of tax saved. He also trusts that your firm will accept a fixed fee for representing Stark in a dispute regarding the amount of sales tax payable to the taxation authorities.
1.From a review of the information above, your audit assistant has highlighted some of the potential risks to independence in respect of the audit of Stark.
(1) Mr Day would like his daughter Zoe to be part of the audit team
(2) Audit team to be offered a balloon flight
(3) Tax fee to be based on a percentage of tax saved
(4) Firm to represent Stark in a dispute with the tax authorities
Which of the following options best identifies the valid threats to independence and allocates the threat to the most appropriate category?