You are one of two partners at Diligence Chartered Accountants, a small, specialist audit firm based in the Central West of NSW with clients in the aged care, retail, tourism, agri-business, local government, community banking, and education sectors. It's a snowy Thursday evening in early July 2021 and you're meeting with your audit teamKel Richards (Manager), Sally Neilson (Senior), Kristin Jensen (Graduate), and Josh McDowell (Undergraduate) to review the working papers and follow up on some issues from the recently completed interim audit on Inland Dominion Enterprises (IDE) Pty Limited before beginning the final audit in mid-August.

Kristin and Josh only began audit work this year, Sally and Kel are very experienced and have been with Diligence for 8 years. IDE is a conglomerate, privately owned by twin brothers Barry and Neville Joffe. With a background in farming, the Joffe brothers have operated Mayfield Agricultural for more than twenty years before establishing IDE in 2016 to enable them to secure controlling stakes in sheet metal fabricator Small Town Steel and tourism operator Hockeys Resorts over the last 5 years.

Question 6. Hockeys Resortsindependence issues

The CEO of Hockeys Resorts, Charlotte Pidgeon, has approached you about undertaking an engagement to value the entire Port Douglas resort for the purposes of securing new finance. Given the impact of COVID-19 on the tourism industry she has suggested that the valuation engagement be undertaken without charging a fee as a gesture of goodwill. Before IDE gained a controlling stake in Hockeys Resorts, Diligence Charted Accountants did undertake valuation work at their resorts. The current value of Hockey Resorts is material to IDE.

When discussing the issue with the audit team, Josh McDowell informs you that he was given a small parcel of shares in Hockeys Resorts three years ago by his uncle as an 18^th birthday present.

Required

With reference to APES110:

1. identify and explain the potential independence threats to Diligence Chartered Accountants
2. propose actions your firm should take to eliminate the potential threats to independence and reduce the risk of similar independence threats occurring in the future.