1. Audit committee:

i. Who are executive directors?

ii. Why is it so important that an audit committee not have any executive directors as members?

2. Justin Morris owns the majority of the shares in Dolphin Pty Ltd, and is the chairman of the board of directors of the company. In February 2017, Justin approached your audit firm, Clarke Partners, to carry out the Dolphin audit for the year ended 30 June 2017. Dolphin has not been audited before but this year the audit has been requested by the companys bank and a new private equity investor group which has just acquired a 20 per cent share of Dolphin. You know that one of the partners at Clarke Partners went to school with Justin and has been friends with Justin for many years.

i.Identify and explain any significant threats to independence and potential breaches to codes of ethics for Clarke Partners in accepting the audit of Dolphin.

ii.Explain any relevant and practical safeguards that Clarke Partners could implement to reduce the threats.