(a) Fernwood Co

Up to 1 mark each point explained:

– Self-review threat (restrict to ½ mark if not explained)
 – Provision of non-audit service
 – Threat depends on materiality of balance
 – Threat depends on degree of subjectivity
 – Can only perform if low threat and safeguards used
 – Pension very subjective so unlikely to be able to reduce threat to acceptable level
 – If service provided assess skills and competence

Maximum marks 6

(b) Hall Co

Up to 1 mark each point explained:

– Client should not influence selection of audit team members
 – Kia has no experience of the client
 – Family relationship creates three objectivity threats (1 mark each explained)
 – Degree of threat depends on level of influence
 – Do not assign Kia to the team
 – Explain to client why Kia has not been assigned

Maximum marks 6

(c) Collier Co

Up to 1 mark each point explained:

– Custodial service creates self-interest threat (½ mark if not explained)
 – Safeguards to be applied (1 mark each)
 – Money laundering consideration
 – Consider security of offices/availability of space
 – Extra costs e.g. insurance, more security measures
 – Reputational risk in event of theft/loss of documents
 – Confidentiality issues

Maximum marks 5

(d) Gates Co

Up to 1 mark each point explained:

– Referral fee creates self-interest threat
 – Allowed if safeguards in place (1 mark for each safeguard)
 – Consider quality of service provided

Maximum marks 3