(This question assesses Assessment Criterion 1 Describe and explain the theoretical principles and regulations underpinning the practice of auditing and Assessment Criterion 2 Interpret how the auditing standards, Corporations Law and Code of Professional Ethics apply to particular situations) O A Partners (OAP) is a large Australian audit firm with offices located in each of the major cities During April 2021, OAP was successful in obtaining a new audit client, Superior Diamonds Ltd (SDL), a miner and processor of high quality diamonds Prior year audits of SDL were conducted by Allen Associates As part of the transfer of records process, the audit partner of OAP met with RJ Allen (Managing Partner, Allen Associates) to discuss acceptance of SDL as a client and to inquire about access to Allen Associates work papers In the discussion, RJ Allen stated that there were no issues that O A Partners should be aware of before accepting the client or commencing the work However, the audit partner of OAP (Mr Nick Cleary), when undertaking the process to determine client acceptance discovered the following matters The chief executive officer of SDL is Jack Chalmers Jacks wife is a well known jewellery designer who provides jewellery for high profile fashion shows, media personalities and some film stars Jack is very vocal about the success of his wifes jewellery business and has offered to source some exclusive jewellery pieces for the audit team members Owen Fox, the chief financial officer (CFO) and Nick Cleary (audit partner of OAP) have been friends for many years Their families usually go on holiday together once a year, and they frequently socialise with one another Nick rates Owen very highly as a CFO and he is confident that Owen will cooperate with the auditors Jessica McKeon, a new audit manager at OAP, was previously employed by SDL and she prepared the financial report for the period under audit (i e year ended 30 June 2021) Required Using the accompanying answer booklet Identify and explain any threats to independence for OAP when performing the SDL audit For each threat identified in (a), state what actions OAP needs to implement to eliminate or reduce the threat to an acceptable level No Identification and explanation of threats to independence (a) Actions (safeguards) to reduce threat to acceptable level (b) 1 2 3

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(This question assesses Assessment Criterion 1: Describe and explain the theoretical principles and regulations underpinning the practice of auditing and Assessment Criterion 2: Interpret how

(This question assesses Assessment Criterion 1: Describe and explain the theoretical principles and regulations underpinning the practice of auditing and Assessment Criterion 2: Interpret how the auditing standards, Corporations Law and Code of Professional Ethics apply to particular situations)

O & A Partners (OAP) is a large Australian audit firm with offices located in each of the major cities. During April 2021, OAP was successful in obtaining a new audit client, Superior Diamonds Ltd (SDL), a miner and processor of high quality diamonds.

Prior year audits of SDL were conducted by Allen & Associates. As part of the transfer of records process, the audit partner of OAP met with RJ Allen (Managing Partner, Allen & Associates) to discuss acceptance of SDL as a client and to inquire about access to Allen & Associates work papers. In the discussion, RJ Allen stated that there were no issues that O & A Partners should be aware of before accepting the client or commencing the work.

However, the audit partner of OAP (Mr Nick Cleary), when undertaking the process to determine client acceptance discovered the following matters:

The chief executive officer of SDL is Jack Chalmers. Jacks wife is a well known

jewellery designer who provides jewellery for high profile fashion shows, media personalities and some film stars. Jack is very vocal about the success of his wifes jewellery business and has offered to source some exclusive jewellery pieces for the audit team members.
Owen Fox, the chief financial officer (CFO) and Nick Cleary (audit partner of OAP) have been friends for many years. Their families usually go on holiday together once a year, and they frequently socialise with one another. Nick rates Owen very highly as a CFO and he is confident that Owen will cooperate with the auditors.
Jessica McKeon, a new audit manager at OAP, was previously employed by SDL and she prepared the financial report for the period under audit (i.e. year ended 30 June 2021).

Required
Using the accompanying answer booklet:

Identify and explain any threats to independence for OAP when performing the SDL audit.
For each threat identified in (a), state what actions OAP needs to implement to eliminate or reduce the threat to an acceptable level.

No.

Identification and explanation of threats to independence (a)

Actions (safeguards) to reduce threat to acceptable level (b)

1

2

3