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Question 1 1. ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing states the objective of an audit of the financial statements. What is that objective? (2 marks) 2. Discuss why there is an economic demand for auditing. (2 marks) 3. You are an audit senior of the audit firm Johns & Associates and you were made aware of the following information about your audit client Zappy Ltd: The audit has always flowed very smoothly. It does not hurt that the audit partner has a very good relationship with the Director of Finance (DoF), with whom he shares a passion for basketball and often shares courtside seats at the playoff games. The DoF was very appreciative of the efforts of the audit team this year. It has been a challenging year for his team, as a number of his key team members resigned. However, the audit manager offered to have some of the audit team members stepped in, to provide support with the preparation of certain accounting schedules. The DoF was so grateful, he has arranged for the audit team to spend a weekend at the company's north coast villa after the audit is complete. The regulators who oversee the industry that Zappy Ltd operates in are questioning some of management's judgements and estimates. Given the good relationship with the audit firm, the client has asked the partner to represent them in explaining to the regulators the basis of their assumptions in the estimates. A new audit associate has joined the team this year and is responsible for auditing the cash and cash equivalent financial statement line item. The associate has found some transactions which she is questioning the authenticity of. However, being new to the team and hearing of the excellent relationship that the team has with the client, she is hesitant to raise her concems with the client as she is concerned this may sour the relationship with the client. Required a) Identify and give FOUR specific examples of ethical threats which may affect the independence of John & Associate's audit of Zappy Ltd. (4 marks) b) For each threat identified in part (a), explain how it may be reduced. (4 marks)