The Quality Control and Independence Committee of Jeane Accountancy will hold its monthly committee meeting tomorrow. There are two themes in the meeting this month.

Theme #1: As an experienced engagement partner, you are invited to talk to the new committee members regarding

(1)the demand of audit and assurance services.

(2)The ethical principles professional accountants should follow in practice.

Theme #2: Professional Ethics and Auditor Independence

During the committee meeting, a review of Jeane Accountancy's compliance of independence requirements under APES 110 has revealed the following.

Adam Bold is one of the partners in the audit and assurance division engaged in providing assurance services to Australian clients. Adam has recently inherited a portfolio of shares in numerous companies both domestic and overseas from his father. One such investment is a 15% stake in Meru Steel Ltd, an Australian manufacturing company.Adam has been the Audit Engagement Partner for this client for the past three (3) years and has commenced the current year's audit with an audit team.

Jeane Accountancy has entered a contract with Kampus Publications, Melbourne to supply an accounting textbook to be published for university use. The contract requires the publisher to pay upfront fees of $200,000 and thereafter a royalty of 10% for every copy of book sold. Jeane Accountancy is aware that Edward Mullen, the owner of Kampus Publications also serves on the board of two of its clients, Meru Steel Ltd and Bio Organics. Jeane Accountancy provides assurance services to these two companies and does not believe that entering a contract with Kampus Publications has threatened its independence.

Required

Answer the following questions with relevant information as identified in Case 3:

A.Referring to agency theory, information hypothesis and insurance hypothesis, provide a written note to summarise why audit and assurance services are demanded by stakeholders.

(3 marks)

B.Referring to APES 110, provide a written note to explain the ethical principles of professional accountants.

(3 marks)

C.For the above situations mentioned, discuss whether there are threats to auditor independence with justification. Suggest any safeguards if there are threats to auditor independence in these situations.

(3 marks)