You are training with ORD&Co auditors. You have been given responsibility for the audit of inventory at BioGen Ltd and you have just attended the year-end inventory count at this biotechnology company. BioGen Ltd expanded earlier this year after attracting an investor who was interested in providing finance to get some new types of genetically modified (GM) seeds to market. Your firm was involved in valuing the seeds at meetings with the investor. The funds invested have enabled BioGen Ltd to substantially expand its operations. The investor, known as "Buster" is a formidable, charismatic character who used to play tennis with the audit partner. Buster has taken an executive position on the board of BioGen Ltd now that he is a major shareholder.

At the inventory count you asked to see the GM seeds to agree the physical quantity to the inventory records. However, the laboratory manager would not allow you access as the seeds were kept in a "sterile and secure" location. You report this to the audit partner and ask him to contact Buster to arrange access, but he tells you that it is not necessary to check the physical existence of the seeds or contact Buster as he is "very busy and very important". Your partner is very excited as he has just learned that he is going on a luxury cruise with his wife paid for by BioGen Ltd for services rendered. Your firm is also pleased with the

partner as he has secured the ongoing audit of BioGen Ltd, which will attract a large audit fee now that BioGen Ltd has expanded significantly; in fact BioGen Ltd is now the largest audit client of your audit firm.

Required

(a) Identify the threats to auditor independence and the Professional Code of

Ethics in the audit engagement between ORD&Co and BioGen Ltd.

(b) Discuss how the threats identified in part (a) may impact on professional

independence.