M& M Chartered Professional Accountants is a Toronto-based audit firm owned by three partners. Assume, you are one of the partners at the M & M Chartered Professional Accountants (audit firm), and you are dealing with various situations in relation to your firm’s audit clients. You are about to sign engagement letters with the following clients for the upcoming audit of financial statements.

• Situation 1 – XYZ Ltd. Your client XYZ ltd has just hired your father as senior manager of finance.

• Situation 2 – ABC Ltd. The tax manager of ABC ltd (one of your clients) had a serious car accident. As a result, he will not be able to come to the office or even work remotely for the next three months. As the financial yearend is approaching in a couple of days, the CEO of ABC ltd has asked you if the senior auditor in the audit team can help to calculate corporation tax and file the tax return.

Required:

For each situation, explain:

a) The ethical threats to auditors' independence in general and specifically in context of these situations.

b) The necessary safeguards which you think should be in place (by assuming your firm wanted to continue with these clients, initially).