You are an audit manager of the audit firm Lido & Charles and you are planning the audit of Timepiece Ltd, which has been an audit client for seven years and specialises in manufacturing luxury watches. During the planning stage of the audit you obtained the following information. From the Cornwalk College anniversary newsletter published in the Sunday newspaper you noted that the partner and the finance director have known each for many years and in fact went on a cruise together last winter with their families. As a result of this friendship the partner has not yet spoken to the client about the 22% outstanding fee for the last audit. During the year the financial controller (FC) of Timepiece Ltd was on sick leave. The company had no available staff to fulfil in for the FC, therefore a qualified audit senior of Lido & Charles was seconded to the audit client for four months. The audit partner has recommended that the audit senior work on the audit since he would have a good knowledge of the client. The fee income derived from Timepiece Ltd was boosted by this arrangement and along with the audit and tax fee, now accounts for 17% of the firm's total fees. The employees of Timepiece Ltd are entitled to purchase watches at a discount of 15%. The audit team has in previous years been offered the same level of staff discount Required a) Identify and explain THREE specific examples of ethical threats which may affect the independence of Lido & Charles audit of Timepiece Ltd. (3 marks) b) For each threat identified in part (a), explain how it may be reduced. (3 marks) c) What is meant by independence in the context of auditing? (1 mark)