Question 1 (25 marks) Part A You are the audit manager in the audit firm of Justin & Co and you are planning the audit for the client, Spencer Ltd. Spencer's core business is providing investment advice to clients on insurance policies, purchase of shares as well as retirement savings. You have started to plan for the audit of Spencer Ltd for the financial year ended 31 December 2020. The engagement partner for Spencer is Mr Wellington and this has been unchanged for the past eight years. In addition, Mr Wellington has mentioned to you that he would like his son, Benjamin to be involved in the audit for Spencer this year as Benjamin is studying for his Degree in Accounting qualifications too. Mr Wellington also informed you that Tommy Tan, the audit senior for Spencer has received some investment advice from Spencer and is planning to continue doing so next year. During the meeting with Spencer, the finance director, Patrick Low has shared that he has booked a weekend gateway on a cruise ship for the audit team after the audit has been completed. Patrick also recommends that the audit fee for this year should be based on a percentage of Spencer's profits. As Spencer has not paid the audit fee for the previous year, Patrick assured you that they will be paying soon and the audit work should continue. In addition, he trusts that your firm will accept a fixed fee for representing Spencer in a legal dispute regarding the amount of tax payable to the taxation authorities. Required: (a) From the information above, identify and explain FIVE (5) ethical threats to the auditor's independence. (12.5 marks) (b) For each threat identified in (a), suggest the safeguard(s) to reduce the threat to an acceptable level. (You should use a TWO (2) column format using the headings 'Threats and "Safeguards'.) (7.5 marks) (i) (ii) Question 2 (20 marks) You are an audit partner with Henry Lim & Associates. Your client Oakwood Ltd has requested that you: Attend stocktakes in remote locations identified by the client to observe that the staff are complying with stocktake instructions. Check whether the annual schedule of bonuses paid to senior management has been calculated correctly by checking the figures used in the calculations to the company's audited financial statements. (iii) Perform analytical procedures and enquiries of management to ascertain whether the half-yearly financial statements present a true and fair view and provide a written opinion addressed to management. (iv) Prepare a report providing a written opinion addressed to a government department indicating whether Oakwood has complied with the legal obligations of a government grant. (v) Provide an oral (verbal) report to Oakwood's creditors that the company does not have financial difficulties. Required: (a) For each of the services (i) to (iv) above, indicate if it is an assurance engagement. Explain your answers briefly. (12.5 marks) (b) Describe the FIVE (5) elements of an assurance engagement. (7.5 marks)