Question 3 ([2+ 2] + 3 = 7 marks)

a. You are the auditor partner for AAA audit firms, tendering for the audit of Howard Ltd for the 20X1 financial year. During the review of an Australian Securities and Investments Commission (ASIC) company extract for your client Howard Ltd, you note that AAA audit firm holds an interest in Howard Ltd. The interest is material to AAA audit firm.

Required: 1. What is the threat to compliance with the fundamental principles? (2 marks)

2. Explain whether any safeguards could be put in place to reduce the threat to an acceptable level. (2 marks)