You are a partner in Zorn and Zwicky LLP the firm of chartered accountants that is auditing a large listed retailer of clothing and footwear, Alessi Plc. Zorn and Zwicky LLP is a relatively small firm with ten partners with offices in Portsmouth, Southampton and Bournemouth. There are a number of potentially important matters relating to the audit. • You have noticed that the audit fees from the Alessi Plc audit make up around 14% of the total fee income received by the firm of Zorn and Zwicky LLP. • The Finance Director of Alessi Plc has recently asked your firm to advise on the Alessi Plc tax affairs as well as a potential corporate finance deal involving the acquisition of another business, Babinet Limited – by coincidence this takeover candidate business is also an audit client of Zorn and Zwicky LLP. • The audit manager on your team, who is of course the key person on the audit assignment, has explained that the new Chief Executive of Alessi Plc is his father-in-law. The audit manager has said that he is happy to continue in the team as he is satisfied that he will remain impartial but he asks you whether this might be inappropriate from a professional point of view. • The audit senior in the team has explained that she has an account with Alessi Plc as she regularly buys her clothes and shoes there. She explains that she has potential credit up to a maximum of £500 and her account balance is currently £400 owing to Alessi Plc. • The audit trainee in the team has declared that he has a shareholding of £14,000 in Alessi Plc as he inherited these from his aunt who sadly died recently.

Required: 

a) Critically analyse the matter of independence of Zorn and Zwicky LLP on this audit assignment having regard to the level of fees as a proportion of the total fee income mentioned above. 

b) Consider the position of Zorn and Zwicky LLP in terms of the potential takeover by Alessi Plc of Babinet Limited. Explain what your firm should do in the light of the need for independence. 

c) Critically appraise the position regarding the audit manager and in particular whether this is a threat to independence. Explain your decision as the audit partner in charge of the client relationship. 

d) Explain the issues arising from the audit senior’s account with the audit client and explain your decision as to whether she may remain in the team without compromising independence. 

e) Consider the position of the audit trainee’s shareholding and briefly analyse the reason for your decision having considered the fundamental need for independence. 

f) Briefly outline two important qualities that an auditor must possess other than independence.