QUESTION 5

1. A review of clients of the auditing firm of Meg & Steve (M&S) revealed that the following engagement was potentially in breach of the independence requirements of APES110.

   M&S is divided into different, autonomous divisions with each having separate partners and staff. The IT Consulting Division has recently assisted an audit client, BAT Pty Ltd, with installing a new financial accounting system. The IT Consulting Division chose the most suitable system for the company and trained the BAT staff, but no one from M&S has processed any transactions or made any accounting entries.

   Required:

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

   (ii) If your answer to part (i) is yes, identify the single most significant type of potential threat and recommend a safeguard, if any, that could reduce or remove the threat. Alternatively, if your answer to part (i) is no, give reasons why no threat exists.