You had been recently promoted to Senior Auditor of the audit firm Jose Rizal and Associates and was asked to

consider the following independent situations:

You have audited Avatar Pty Ltd, a stable engineering firm, for several years. At the start of this year, the

finance director, Michelle Cruz, retired after 10 years with company and was replaced by Sherlon Dizon, a

long-time friend of the audit manager Karlo Arcilla, who was best man at Sherlon's recent marriage

Question:

(a) Identify the type of potential threat to independence. Justify your answer. (8 marks)

(b) Explain what safeguards, if any, that could be implemented to reduce the independence threats. (4

marks)

(c) Assess whether audit independence can be achieved. (4 marks)