You are an audit manager with Clarke & Johnson (CJI). For the past years CJ has been the auditor of luxury Travel Holidays LTD (LTH), a travel company. Geoff, the audit partner, has asked you the
to contact Chris, LTHs CEO, with a view to CJ being re-engaged as the auditor for the upcoming audit of the 30 June 2015 financial report.
Geoff has also indicated that intends to allocate Michael, a first-year accountant, and Annette, an accountant in CJs tax advisory department, to the LTH audit for the first time. Geoff suggested
that you discuss the audit with each of these staff, with a view to identifying any independence issues. You held talks with Chris, Michael and Annette of these conversations were as follows:
1. Conversation with Chris, situation 1
Chris stated: The board of directors were impressed with last years audit and would like to propose reappointing CJ as the auditor of the 30 June 2015 financial report audit. The board would also
like to invite Geoff to give a speech about LTH at the next travel agency seminar, to assist in promoting LTHs business to attract more investors. I understand that this is outside CJs normal
practice; however, the board expressed the view that it will be very difficult for LTH to continue any business engagements with CJ should Geoff refuse to provide such assistance.
2. Conversation with Chris, situation 2
Chris stated: To express our sincerity towards CJ and Geoff, and to maintain the good relationship in anticipation of another smooth audit for 2015, LTH would like to present a complimentary 14-
day holiday package voucher for four people to the Greek isles for both Geoffs and your family. All expenses, including accommodation and travelling cost, will be paid by LTH.
3. Conversation with Michael
Michael stated: I am very excited to be part of the audit team. I believe that I will be a valuable asset to the team, as my dad is LTHs financial controller. He is responsible for the
preparation of LTHs financial report.
4. Conversation with Annette
Annette stated: I am glad that I have been allocated to this years LTHs audit team. Its going to be a very efficient audit this year! I was on a temporary assignment at LTHs just a month ago,
helping LTH with its tax calculations and preparing accounting entries that will be reflected in the 30 June 2015 financial report, so I dont think there will be much audit work required around
the tax accounts. It will be great to catch up with everybody at LTH again, as they are so easy to work with.
(a) For each situation, identify and evaluate any threats in relation to auditor independence.
(b) Identify any safeguards to those threats identified above.
You are an audit senior with Crampton and Hasaad and you are planning the audit of Mining supplies LTD (MSL) for the year ended 30 June 2015. MSL sells mining equipment and spare parts to mining
companies across Australia. MSL has operational centres in Perth, Newcastle, and Mt. Isa. Each operational centre warehouses the equipment and spare parts and provides sales and maintenance
services. MSLs head office is located in Melbourne where finance, IT and other corporate services are provided.
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