You are Mark Ouse, an audit senior with the firm Pull, Lift, Tug & Co. You are planning the financial report audit of Nestree Ltd, a manufacturer of confectionery. The following issues have arisen.
Arthur Stick, the Finance Manager of Nestree, was ill for three months of the year and Eloise Lift, the engagement partner, received a request from Nestree to supply a member of staff on secondment until Arthur was well. Eloise was only too happy to help and Daisy Flute, a member of Pull, Lift, Tug & Co's audit staff was seconded to Nestree for three months. Nestree was happy with this arrangement and Eloise enjoyed the additional fees this created for the firm. As a result of Daisy's secondment and the knowledge she now has 153about Nestree, Eloise is suggesting that she will be a valuable member of the audit team for the current financial year's audit.
From the review of the draft financials that Mark has received, Nestree appears to take an optimistic approach to its valuation of development expenditure capitalised in intangible assets. Executive remuneration includes a profit-related bonus.
Staff of Nestree are entitled to visit the company shop where defective confectionery products or ‘seconds’ that do not make it past the company's quality control processes are available for purchase at a significant discount to normal retail prices. Nestree has in the past invited the audit team to enjoy this benefit while it is attending the company during its audit visit.
You are aware that Nestree's Finance Director, Barbara Polo, plays on the same softball team as Eloise Lift and recently spent a week with the team on a tour of Vanuatu.
Required
Explain the ethical threats above and identify how they might be avoided.