You currently work for a firm of Chartered Certified Accountants and Auditors (The firm), working on the audit team for the firms client, Company X (The audit client). You are responsible for the identification and mitigation of ethical issues. Your firm has a total fee income of 6,200,000. You have collected the following information which requires consideration in relation to the ethical threats that may be present together with some going concern issues which will also need to be communicated to the audit partner. The audit partner responsible for the audit of Company X has been in position for the previous 7 years and has been requested to continue as audit partner for an extra year. Company X are a publicly listed company. The total fee income for this audit client in respect of the current financial year, 2022 is likely to exceed 15% of the overall fee income for your firm. Company X have approached your firm to act for them in helping to secure a large loan with a bank they have started using. Company X have been unsuccessful in securing a loan with other financial institutions and they believe your firm would be able to convince the bank to enter into a loan agreement with them. Company X have approached your firm to re-design and monitor the internal audit department. The finance manager has explicitly expressed that they want the monitoring of the internal controls over the financial reporting of the company to be carried out by your firm. A senior member of the audit team selected to work on the current audit of Company X has disclosed the following information: That they own shares in Company X but are willing to sell the shares on completion of the audit. That they have a close personal relationship with the finance manager of the audit client. Company X owe your firm outstanding fees for the previous years audit. The finance manager of Company X has informed your firm that cashflow has been problematic due to the recent loss of a major customer which accounts for approximately 25% of their turnover. The customer in question has transferred their business to a new competitor. In addition, it is anticipated that due to an economic downturn, two medium sized customers of Company X will go out of business in the next month. Both customers have outstanding receivables balances. Your firm have agreed a payment plan for the outstanding fees with Company X, however your firm have yet to receive any payments. The finance manager of Company X has stated that if they are able to secure the loan with the new bank that the fees would be paid in full prior to commencing the current audit.

Required: a) Identify and discuss FIVE ethical issues that would threaten the independence of your firm auditing Company X. For each ethical issue, recommend two safeguards that should be put in place to mitigate or eliminate the threat identified. (15 marks)