Andrew & Associates Audit firm, has been approached to conduct the audit of Ninja Games Ltd

(NGL), a manufacturer of computer games, for the year ended 31 December 2019.

Andrew & Associates has not previously audited NGL's financial report, although it has

undertaken other types of engagements for NGL. Last year NGL hired Andrew & Associates to

assist in the redesign of NGL's accounting software to ensure that internal controls over the

online sales were adequate to ensure the confidentiality of customer data and accuracy of

recording. The new software was implemented at the beginning of the current year and appears

to be working satisfactorily. As part of this year's audit, Andrew and Associates is expected to

review the internal controls at NGL, including the controls within the IT systems.

As part of NGL's financing arrangements with its bank, ABC Bank Ltd, it has a loan covenant that

stipulates that the quick asset ratio cannot be less than 1:1 or ABC Bank Ltd has the right to

withdraw all funding. The board has advised Andrew and Associates that NGL's quick asset ratio

is currently at 0.8:1 due to industrial action holding up the sale of goods imported from overseas.

The board has asked Andrew and Associates to ignore this temporary breach of the loan

covenant, explaining that NGL is a stable and financially sound company, and that the ratio will

return to a positive level on resolution of the industrial dispute. The board has indicated that

unnecessarily disclosing this within the audit report would force it to reconsider its plans to use

Andrew and Associates audit firm for other engagements.

As a result of NGL's current cash flow difficulties, the board has requested that Andrew &

Associate's audit fee for 2019 be paid in NGL shares. The board has indicated that the market

value of the shares will equate to the value of the audit fee charged by Andrew & Associates.

Required:

a. Identify three (3) separate key threats to Andrew & Associates' independence that may

arise under APES 110. (3 marks)

b. For each independence threat identified in (a), explain why it is threat. (3 marks)

c. For each independence threat identified in (a) above, describe the safeguard / course of

action Andrew & Associates should take to reduce the independence threat and to ensure

compliance with APES 110. (3 marks)

Q1 (a) Threat: (b) Explanation: (c)Safeguard /Course of action: