Your audit firm, Willow & Pine CPAs has just taken on a new client, Gym-Fit Ltd (GFL), a very successful gym club that operates both a membership and pay as you use system. GFL, which commenced business in 2019, has faced competition for the last two years from a nationwide health club, Monster Gyms Ltd, which operates a members-only policy. You have just been advised that your firm has received an invitation to tender for the audit of the company that owns Monster Gyms Ltd. The Managing Director of GFL, Laurie, is an old college friend of your audit manager and it was through this connection that your firm was able to tender for its audit. You have been assigned as senior auditor for GFL. On a recent visit to your office, Laurie stated that she would like to extend an offer that all staff of Willow & Pine CPAs would be eligible for a special membership rate, which is 50% of standard membership rates and then entitles the member to 75% off special classes. She proposed that you sit on the board of directors at GFL as a non-executive director. Additionally, she proposed that your firm confirm, as part of the audit, the figures on an insurance claim to be submitted in respect of damage caused by a burst water pipe. The pipe burst during a spell of cold weather in the main gym area just prior to the year end.

Required:

(a) In the context of the above scenario:

(i) Evaluate the ethical threats (real or perceived) which may affect the independence of your firms audit of GFL; and (ii) For each threat, recommend how it might be eliminated or mitigated to a satisfactory level.

(b) Discuss four benefits of an audit committee to a company.