You are the audit manager of Johnson & Co and you are planning the audit of Consoleation Ltd, which has been an audit client for four years and specialises in distributing electronic games consoles.

During the planning stage of the audit you have obtained the following information.

The employees of Consoleation Ltd are entitled to purchase consoles at a discount of 15%. The audit team has in previous years been offered the same level of staff discount.

During the year the financial controller of Consoleation Ltd was ill and hence unable to work. The company had no spare staff able to fulfil the role and hence a qualified audit senior of Johnson & Co was seconded to the client for six months. The audit partner has recommended that the audit senior work on the audit as he has good knowledge of the client. The fee income derived from Consoleation Ltd was boosted by this engagement and along with the audit and tax fee, now accounts for 16% of the firms total fees.

From a review of the correspondence files you note that the partner and the managing director have known each other socially for many years and in fact went on holiday together last summer with their families. As a result of this friendship the partner has not yet spoken to the client about the fee for last years audit, 50% of which is still outstanding.

Required:

(i) Identify FIVE ethical threats which may affect the independence of Johnson & Cos audit of Consoleation Ltd, and

(ii) For each threat suggest how it might be avoided.