You are one of two partners at Muppet Chartered Accountants (MCA), a small, specialist audit firm with clients across Northern Victoria. It's a balmy evening in early February 2022 and you're meeting with your audit team to discuss issues with current clients that have 30 June year ends.

Question 1. Independence issues (4%)

An APES 110 review of all clients has revealed the following:

1. The long-retired founding partner of MCA, Barry Muppet, has operated a small proprietary company through which he and his brothers own several investment properties for 7 years. MCA has performed the annual audit (as required by the company's constitution) for the same period of time. In addition, it also processes the journal entries prepared by Barry Muppet, extracts the trial balance, and prepares the financial report.
2. Dubbo Data is a listed IT company. The wife of the MCA manager on the engagement, Jacqui Jones, recently purchased shares in Dubbo Data on the advice of her financial planner.
3. Pegg Limited is a listed mining and energy company that MCA has audited for the past 5 years. Shane Lund, the auditor in charge, recently purchased units in a managed investment fund. In its product disclosure statement, the fund disclosed that Pegg Limited was among its top 10 shareholdings.
4. Matthew James Partners is a law firm. MCA has performed the audit of MJP's trust account for many years. Recently, the two firms agreed to combine their collective expertise in the motor vehicle industry to set up a 'one-stop shop' for motor vehicle dealers. The new business, called Dealer Management Pty Ltd, hopes to capitalise on the profile of the two firms to woo motor vehicle dealers away from their current advisers

Required

For each of the independent situations above and with reference to APES 110 answer the following questions:

1. identify and explain the potential threats to MCA.
2. recommend safeguards to reduce the independence threats
3. provide an objective assessment of whether audit independence can be achieved.

Answer this question using the following headings:

1. Threats

2. Safeguards

3. Objective assessment