You are an audit manager of Nectar Co. and you are planning the audit of Apple Ltd, which is listed. Mr. X has been the audit engagement partner for nearly 8 years and his daughter has just been employed as sales manager. As part of her pay package, she would also be entitled to shares in Apple Ltd. The finance director of Apple Ltd has resigned four months ago and his replacement has not yet been made. In order to fulfil the latters role, a qualified senior auditor of Nectar Co. was seconded for three months. Given that the audit senior has good knowledge of Apple Ltd, the audit partner has proposed to include him in the audit team for the current year audit. Apple Ltd has also asked Nectar Co. to help them in recruiting a finance director. The board of directors of Apple Ltd are considering the setting up of an internal audit function and have suggested to outsource same to Nectar Co. One of the directors has proposed that if Nectar Co. is appointed as both internal auditor and external auditor, then the total fees would be set as at least 20% of profit before tax in view of aligning the interest of both companies. Apple Ltd has applied for a bank loan and has prepared a cash flow forecast for the next two years. The bank has requested a confirmation from the external auditor about the accuracy of the forecast. Following this request, Apple Ltd has asked you to examine same and then report to the bank. REQUIRED: a) Discuss the importance of assessing risk at the planning stage of an audit. [5] b) i) Identify and explain four ethical threats which may affect the independence of Nectar Co.; and ii) For each threat explain how it might be reduced to an acceptable level. [16] b) Explain how an internal audit department can help in preventing and detecting fraud and error. [4] d) Explain the type of assurance that Nectar Co would give to the bank. [5] [Total: 30 marks]