You are a junior auditor working for Laverton Corporation (Laverton), a mid-tier public accounting firm with clients located in Sydney. For the past five consecutive years, Laverton has been the auditor of Bayswater, one of Australias leading retailers of electronic cars. Bayswater has had its shares listed on the Australian Securities Exchange (ASX) since 2012.

Alice, the audit partner for all the audits in the past, has indicated that she will be taking the same role of audit partner in the audit of Bayswaters financial reports for the year ending 30 June 2021. The audit team will also include you and 3 other members. You have also discovered that Peter Huge, a senior auditor who will be allocated to the audit at Bayswater this year, has his wife working as an executive member of Bayswaters Board of Directors. In addition, as this is the second consecutive year that you audit Bayswater, Ben, the CEO of Bayswater, has just provided you with an offer to buy the most advanced electric car in the market at a discount of 20% of the market price, based on the work and contribution that you and the audit team have done for them in the past.

Required:

(a) Identify and explain any potential threats to auditor independence, based on the requirements set out in the Code of Ethics for Professional Accountants APES 110 and Corporations Act 2001. (6 marks)

(b) Suggest any safeguards to the threats identified above. (4 marks)