REQUIRED Identify the threats to independence in the situations described above and suggest how the firm might deal with them. (1 mark + 2 marks + 2 marks) Q3 - Several independent audit situations are presented here. Assume that everything other than what is described would have resulted in an unqualified opinion on the company's financial statements. Indicate the type of opinion you believe should be expressed in each situation and explain your choice. If an explanatory paragraph is needed, indicate whether it should precede or follow the opinion paragraph. (a). The client treated a lease as an operating lease, but the auditor believes it should have been accounted for as a capital lease. The effects are material. (b). The client restricted the auditor from observing the physical inventory. Inventory is a material item. (e). One of your client's subsidiaries was audited by another audit firm, whose opinion was qualified because of a GAAP violation. You do not believe that the GAAP violation is material to the consolidated financial statements on which you are expressing an opinion. (d). You are convinced that your client is violating another company's patent in the process of manufacturing its only product. The client will not disclose this because it does not want to wave a red flag and bring this violation to the other company's attention. A preliminary estimate is that the royalty payments required would be material to the financial statements. (e). The client, with reasonable justification, has changed its method of accounting for depreciation for all factory and office equipment. The effect of this change is not material to the current-year financial statements, but is likely to have a material effect in future years. The client's management will not disclose this change because of its immaterial effect on the current-year statements. You have been unable to persuade management to make the disclosure. (5 x 1 mark=5 marks)