Fellowes and Associates Chartered Accountants is a successful mid-tier accounting fi rm with a large range of clients across Canada. During the 2016 financial year, Fellowes and Associates gained a new client, Health Care Holdings Group (HCHG), which owns 100 percent of the following entities: 

• Shady Oaks Centre, a private treatment center 
• Gardens Nursing Home Ltd., a private nursing home 
• Total Laser Care Limited (TLCL), a private clinic that specializes in the laser treatment of skin defects 
• Year end for all HCHG entities is June 30 

TLCL owns two relatively old laser machines used in therapy. Recently, staff using these machines have raised concerns that they have adverse impacts on patients. The CEO of TCCL, Betty Raman, has approached Tania Fellowes, the audit partner responsible for the financial statement audit, about undertaking an engagement with respect to the laser machines. Betty has asked Tania to provide an opinion that the machines are fit for use. Betty pointed out that the auditor for TLCL has not been appointed for the following year and suggested Fellowes and Associates might like to take on the laser machines engagement without charging a fee as a gesture of goodwill. 

Prior to the appointment for the 2016 financial year of Fellowes and Associates as the auditor for HCHG, the group that controls TLCL, some preliminary analysis by Tania Fellowes identified the following situations:

Required 

(a) Identify and explain the potential type of threat to Fellowes and Associates’ independence in situations (1) and (2) above. 

(b) What action should Fellowes and Associates take to eliminate the potential threats to independence in situations (1) and (2) above? What safeguards should be instituted to reduce the risk of similar independence threats occurring in the future?