You are a manager in the audit firm of ABC & Co; and this is your first time you have worked on one of the firms established clients, Tark Co. The main activity of Tark Co is providing investment advice to individuals regarding saving for retirement, purchase of shares and securities and investing in tax efficient savings schemes. Tark is regulated by the relevant financial services authority.

You have been asked to start the audit planning for Tark Co, by Mr. Soon, a partner in ABC & Co. Mr. Soon has been the engagement partner for Tark Co, for the past nine years and so has excellent knowledge of the client. Mr. Soon has informed you that he would like his daughter Afi to be part of the audit team this year; Afi is currently studying for her first set of knowledge level papers for her ICAG qualification. Mr. Soon also informs you that Mr. Fac, the audit senior, received investment advice from Tark Co during the year and intends to do the same next year.

In an initial meeting with the finance director of Tark Co, you learnt that the audit team will not be entertained on Tark Co.s yacht this year as this could appear to be an attempt to influence the opinion of the audit. Instead, he has arranged a balloon flight costing less than one-tenth of the expenses of using the yacht and hopes this will be acceptable. The director also states that the fee for taxation services this year should be based on a percentage of tax saved and trust that your firm will accept a fixed fee for representing Tark Co in a dispute regarding the amount of sales tax payable to the taxation authorities.

Required: i) Explain the ethical threats which may affect the auditor of Tark Co. (5 marks) ii) For each ethical threat, discuss how the effect of the threat can be mitigated. (5marks)

State and explain the five (5) Ethical principle of the IFAC Code of Conduct for accountants (5 marks)