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A firm provides valuation services to an audit client. The service involves the valuation of matters material to the financial statements and involves a significant

  1. A firm provides valuation services to an audit client. The service involves the valuation of matters material to the financial statements and involves a significant degree of subjectivity.What kind of threat is present in this situation? What are the safeguards that should be applied to eliminate this threat? Justify the answer.
  2. Ricardo Dalisay, CPA, was offered the engagement to audit the financial statements of Probinsyano Company for the year ended December 31, 2019. Ricardo had served as a director of Probinsyano until December 31, 2017, and his spouse currently owns 1,000 of 200,000 outstanding shares of Probinsyano. Ricardo disassociated from Probinsyano prior to being offered the engagement. Moreover, the engagement does not cover any period that includes Ricardo's association or employment with Probinsyano.

a. What are the threats surrounding this offer to Ricardo?

b. Under the Code of Ethics, what is the proper action that Ricardo must take? Justify the answer.

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