a. Identify and explain the potential type of threat to Fellowes and Associates independence in situations (1)

Question:

a. Identify and explain the potential type of threat to Fellowes and Associates’ independence in situations (1) and (2) below.

b. What action should Fellowes and Associates take to eliminate the potential threats to independence in situations (1) and (2) above? What safeguards should be instituted to reduce the risk of similar independence threats occurring in the future?

Prior to the appointment for the 2020 financial year of Fellowes and Associates as the auditor for HCHG, the group that controls TLCL, some preliminary analysis by Tania identified the following situations:

1. One of the accountants who intended to be part of the 2020 audit team owns shares in HCHG. The accountant’s interest is not material to him.

2. Fellowes and Associates was previously engaged by HCHG to value its intellectual property. The consolidated balance sheet (statement of financial position) as at June 30, 2020, includes intangible assets of $30 million, which were valued by Fellowes and Associates on March 1, 2020, following HCHG’s acquisition of the subsidiary Shady Oaks Centre. The intangibles are considered material to HCHG.

Intangible Assets
An intangible asset is a resource controlled by an entity without physical substance. Unlike other assets, an intangible asset has no physical existence and you cannot touch it.Types of Intangible Assets and ExamplesSome examples are patented... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...

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