You are a partner in the accounting firm, ABC Chartered Accountants. Your firm provides a range of non-audit services to Rabbit Co which includes bookkeeping, payroll, tax computation and advice. The company recently applied for a bank loan to finance future operations and grow the business. The bank has requested an audited set of financial statements. In order to secure the bank loan, the directors have approached ABC to become the company's auditors, in addition to the provision of the existing services.

 

Required:

What are the two key threats to the auditor's independence in this scenario if ABC accepts the audit engagement? Justify your answer.

What action should the audit partner take to remove the threats to independence?