Burwood Assurance Partners (BAP) is a small accounting firm based in Melbourne. BAP's audit clients are mainly small and medium scale businesses. After working for BAP for 6 years, you have been appointed as the audit manager in 2020. One of your responsibilities is to review ethical matters which have occurred in different audit engagements. You found the following issues in your recent investigations.

(a) BlueSky Ltd (BlueSky) is a medium size construction firm located in Melbourne. BlueSky has been BAP's audit client for the last 5 years. Furthermore, the same audit team has been allocated to audit BlueSky's financial reports for the last 5 years. Peter, who is the audit partner for the past 5 years, had developed a good relationship with BlueSky's CEO Jack. Peter and Jack frequently socialise with each another, and their families go on holiday together. BlueSky had a solid financial performance for the last 5 years. However, in 2020, due to the influence of COVID-19 pandemic, BlueSky is suffering poor cash flows. Final audit work for the year ended 30 June 2020 has been done but BlueSky is unable to pay for the audit fee due. Jack requested to pay for the due audit fee in July 2021 because he believes that BlueSky can recover from such financial distress in 2021. Peter agreed with Jack's optimistic assessment, but you still have concerns about the situation.

b) BlackStone Ltd (BlackStone) is a large food retailer focusing on Melbourne market. An investigation into the BlackStone's tax affairs started in January 2020. Australian Tax Office (ATO) was investigating the possible underpayment of taxes, claiming that tax laws have been breached (BlackStone's tax planning was performed by its tax department). In February 2020, BlackStone's audit committee has asked if BAP can assist by looking into its tax position and liaising with the tax authorities in respect of the tax investigation on its behalf. The matter is expected to be resolved by a tribunal which is scheduled to take place in January 2021. In February 2020, BlackStone's audit committee also asked whether one of BAP's audit partners can be appointed as a non-executive director and serve on the audit committee. The audit committee lacks a financial reporting expert, and the appointment of an audit partner would bring much needed knowledge and experience. You have concerns about this appointment.

(c) Key Solution Pharmacy Ltd. (KSP) is a discount beauty and health care product provider. It is also one of the largest clients for BAP. BAP provides a range of services: taxation, consultancy, and financial audit. The audit fee and other non-audit service fees from KSP represent around 12% of BAP's total income.

Required

1. Identify and discuss the ethical and other professional issues found in above three cases.

2. Recommend the actions that should be taken in relation to each of the issues identified in the above three cases.

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