q12: The audit firm of Scomo & Julia (S&) has identified several matters that are potentially in breach of the independence requirements of APES110. The unrelated matter is listed below.

Required:

(I) Does a potential threat to audit independence exist in the circumstances (Yes/No)? (1 Mark)

(ii) Ifyour answer to part (i) is yes, identify the most significant potential threat (1 Mark) and recommend a safeguard that could reduce or remove the threat. Alternatively, if your answer to part (i) is no, explain why no threat exists. (2 marks)

s&J is divided into different autonomous divisions, each having partners and staff. The Tax Consulting Division has recently submitted the tax return for a small audit client of the firm. The return was prepared by S& using the information provided by the client. The client reviewed the return and signed it before submission.