3. One year ago, Bird and Chun LLP (B&C) set up a public practice firm in Oshawa, Ontario, a prosperous car manufacturing town outside of Toronto. After obtaining a few small clients, B&C has finally managed to obtain one major audit client, Parts R Us, a large manufacturer of car parts, from whom B&C will receive the majority of its income. As Oshawa is a small town, some of B&C's smaller clients are also customers of Parts R Us. Which of following statements best applies to B&C's situation? a) There is a potential for a self-interest threat. b) There is a potential for an intimidation threat. c) There is a potential for a self-review threat. d) There is a potential for an advocacy threat. 4. In recent years in Canada, rules and regulations for assurance engagements have been added to help increase investor confidence. Which of the following statements regarding the increased level of regulation for assurance engagements is most likely true? a) The high level of regulation is intended to create a more consistent platform from which sound investment decisions can be made, and thus market regulation is used to eliminate all possibility of loss. b) Increased rules and regulations eliminate the expectations gap regarding the function of an audit. c) The purpose of the increased level of regulation is to reduce the risk that financial information relied upon by investors may be misleading. d) Increased regulation comes with an increasing cost, but the benefit is that it will never reach a point of diminishing retums. 5. Butter and Scotch LLP (B&S) is the auditor of Panama Inc., a national public grocery chain whose head office is based in Toronto. Which of the following best describes B&S's duty of care? a) There is legal contract between B&S and Panama. Thus, B&S's duty of care to Panama is a contractual one and this protects B&S and cannot give rise to an action for negligence. b) Since B&S's contract is with the client company, Panama, the duty of care is owed only to Panama and not to the body of shareholders as a whole. c) Although B&S's contract is with the client company, Panama, the duty of care is owed to both the client company and the individual shareholders of Panama. d) Although B&S's contract is with the client company, Panama, the duty of care is owed to both the client company and Panama's body of shareholders as a whole.