QUESTION 3 Your firm ABC & Co. (ABC) is the external auditor of Jalen Berhad (Jalen). Jalen employs 2,500 consultants and provides management consultancy services to clients throughout the world. All consultancy services are provided under fixed-price contracts. You are the audit manager responsible for the audit of Jalen. You will be attending Jalen's forthcoming audit committee meeting with Syamsul, the audit engagement partner. Syamsul has provided you with a copy of the audit committee's agenda and has requested that you research each agenda item so that you are in a position to answer any questions. An extract from the agenda is given below. Extract from the audit committee's agenda: (1) Rotation of the audit engagement partner A letter has been received from ABC advising that Syamsul is due to be rotated off the audit team as he has been the audit engagement partner for five years. The audit committee will discuss the chief executive's proposal that Syamsul continues in his role to help future audits run smoothly. Jalen's current chief executive has recently announced his retirement. (2) ABC's response to the invitation to provide non-audit services ABC has stated that there is capacity to undertake non-audit services for Jalen and will present to the audit committee, their response to the following invitations: Invitation (a) To assist with, and take responsibility for, the recruitment of a new chief executive. Invitation (b) To provide payroll services for Jalen, on an outsourced basis, as the audit committee is unhappy with the performance of the company currently providing these services. (3) Potential conflict of interest ABC has advised that they have been approached by Koka Berhad (Koka) to act as external auditor. Koka is one of Jalen's major competitors. ABC has indicated that they will only accept appointment at Koka if they have Jalen's informed consent to act. ABC has stated that they will implement a number of procedures to address any conflict of interest.

Required:

(a) In respect of agenda item (1), identify and explain the threats to ABC's objectivity and state with reasons, how ABC should respond to the proposal that Syamsul continues as audit engagement partner.

(b) For each invitation to provide non-audit services listed as (a) and (b) in agenda item (2), draft notes that identify and explain the threats to ABC's objectivity. Illustrate with reasons, how ABC should address those threats.

(c) In respect of agenda item (3), determine the procedures that ABC should implement to address the potential conflict of interest.