You are an audit partner with ABC Partners (ABC) ABC is a medium size accounting firm based in Melbourne In August 2022, Office Assistant Ltd (OAL), a local furniture manufacturer in Australia, approached ABC and expressed their intention to engage ABC as their financial report auditor Prior to accepting OAL as an audit client for the financial year ended 30 June 2023, you decided to do some investigation and found the following information ABC has not previously audited OAL's financial report However, ABC provided other types of services to OAL In 2022, ABC designed the internal controls over internet sales for OAL The new internal control system had been implemented since May 2022 As part of this year's audit, you expect to review the internal controls at OAL OAL has a long term loan with Commonwealth Bank A loan covenant stipulates that Commonwealth Bank has the right to withdraw all funding if OAL's current ratio is less than 1 2 1 You notice that OAL's current ratio is currently at 1 1 You enquire the CFO about this issue The CFO believes that OAL is a financially healthy company and asks you to ignore this temporary breach of the loan covenant In addition, the CFO asked you not to disclose this information in the audit report Otherwise, the CFO would not consider ABC for any other engagements Due to its rapid growth, OAL has had issues with cash flow Hence, the CFO requested to pay for the 2023 audit with OAL shares He also guarantees that the market value of the shares will be higher than the value of the audit fee Do you think there are threats to auditor independence in the above three situations If yes, please write down what type of threat in column (a) and explain why you believe it is a threat in column (b) If no, leave column (a) blank and explain the reason in column (b) Assume there are threats to auditor independence in the above three situations, please recommend actions that should be taken in relation to each of the situations Explain your answer Besides threats to auditor independence, list three matters that should have been considered before accepting new clients

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You are an audit partner with ABC Partners (ABC). ABC is a medium size accounting firm based in Melbourne. In August 2022, Office Assistant Ltd

You are an audit partner with ABC Partners (ABC). ABC is a medium size accounting firm based in Melbourne. In August 2022, Office Assistant Ltd (OAL), a local furniture manufacturer in Australia, approached ABC and expressed their intention to engage

ABC as their financial report auditor.

Prior to accepting OAL as an audit client for the financial year ended 30 June 2023, you decided to do some investigation and found the following information:

ABC has not previously audited OAL's financial report. However, ABC provided other types of services to OAL. In 2022, ABC designed the internal controls over internet sales for OAL. The new internal control system had been implemented since May 2022. As part of this year's audit, you expect to review the internal controls at OAL.
OAL has a long-term loan with Commonwealth Bank. A loan covenant stipulates that Commonwealth Bank has the right to withdraw all funding if OAL's current ratio is less than 1.2:1. You notice that OAL's current ratio is currently at 1:1. You enquire the CFO about this issue. The CFO believes that OAL is a financially healthy company and asks you to ignore this temporary breach of the loan covenant. In addition, the CFO asked you not to disclose this information in the audit report. Otherwise, the CFO would not consider ABC for any other engagements.
Due to its rapid growth, OAL has had issues with cash flow. Hence, the CFO requested to pay for the 2023 audit with OAL shares. He also guarantees that the market value of the shares will be higher than the value of the audit fee.

Do you think there are threats to auditor independence in the above three situations? If yes, please write down what type of threat in column (a) and explain why you believe it is a threat in column (b). If no, leave column (a) blank and explain the reason in column (b).
Assume there are threats to auditor independence in the above three situations, please recommend actions that should be taken in relation to each of the situations. Explain your answer.
Besides threats to auditor independence, list three matters that should have been considered before accepting new clients.