Described below are situations which have arisen in four unrelated external audit clients of

your firm Sparkle LLP (Sparkle).

Sapphire plc (Sapphire)

Sapphire is a listed company. They appointed a new Finance Director on 5 May 20X2 as

the previous Finance Director left the company to join a competitor is February 20X2.

Jewels year end is 31 May 20X2. In light of this new appointment the directors of Sapphire

have requested that the prior year engagement partner, Mohammad Asif, continues as key

audit partner for the current years audit to safeguard audit quality. Mohammad has been

the key audit partner for the previous seven years.

Topaz Ltd (Topaz)

The financial controller at Topaz has been on long-term sick leave and the finance director

has asked Sparkle for help with finalising the accounting information in preparation for the

year-end audit. Topaz has a wide range of assets, and he has requested that a member of

staff at Sparkle be seconded to Topaz to help with calculating the deprecation charge for

these assets.

Ultralite Ltd (Ultralite)

Ultralite has been a client of Sparkle for a number of years, however, their audit fee from

the previous year is still to be paid. The full fee is outstanding. Ultralite have been

experiencing some cashflow problems following difficult trading conditions and their

directors are unable to confirm that they will be able to pay the fee before this years audit

report is issued.

Viridine Plc (Viridine)

Viridine has recently decided to outsource its internal audit function and has requested that

Sparkle accepts the engagement for an annual fee of 550,000. The directors believe that

Sparkle will be able to provide a cost-effective service due to its cumulative knowledge of

Viridine's business gained through its provision of the external audit. In addition to the audit

of their financial statements (annual fee of 600,000) Sparkle also provide Viridine with IT

services costing 2.4 million per year. Sparkles total annual fee income, excluding the

proposed internal audit services for Viridine, is 20 million.

For each of the situations outlined above, explain the threats to the objectivity and

independence of the external auditors and list the safeguards available to mitigate

these threats.