Question 1

Island Ltd (Island) and Flint Ltd (Flint) are both external audit clients of your firm. Each company has a year end of 30 September. In April 2018, Flint contracted with Island for the provision of services. Flint is dissatisfied with the quality of services provided by

Island and is currently taking legal action against Island. The outcome of the legal action will not be known before the conclusion of both external audits for the year ending

30 September 2018.

Required:

Identify and explain the ethical issues arising from the situation outlined above and state how your firm should address these issues.

Question 2

Your firm is the external auditor of Blackett Ltd (Blackett), an unlisted company, and its wholly-owned subsidiary Coniston Ltd (Coniston). The audit fees for Blackett and

Coniston are 4.2 million and 2.7 million respectively. Your firm also provides annual tax services to both companies for a total fee of 1.6 million. During the current year, your firm performed a one-off IT engagement for Blackett for a fee of 1.1 million. Your firm's total annual fee income from all its clients is 74.8 million.

Required:

Explain what is meant by the self-interest threat in relation to the fee income, arising from the circumstances outlined above, and state how your firm should address this threat.