Case one: M & K Chartered Professional Accountants is an Ottawa based audit firm owned by four partners. Assume, you are one of the partners at the M & K Chartered Professional Accountants $($audit firm$),$ and you are dealing with various situations in relation to your firm$$s audit clients. You are about to sign engagement letters with the following clients for the upcoming audit of financial statements.

$$ Situation $1$ JG Ltd$.$ Your firm is providing other services to JG Ltd from last couple of years and has recently completed the accounting and bookkeeping for the year just ended. This year your firm has also developed & implemented an internal control system for your client JG Ltd$.$

$$ Situation $2$ KP Ltd$.$ One of the audit supervisors in your audit firm has recently been terminated and joined KP Ltd as a chief accountant. KP Ltd is one of your large clients from last couple of years. The estimated audit fee from KP Ltd for this year audit would be around $25\%$ of the total revenue of your firm.

Required:

For each situation, discuss and explain:

a$)$ The ethical threats to auditors' independence in general and specifically in context of these situations.

b$)$ The necessary safeguards which you think should be in place $($by assuming your firm wanted to continue with these clients, initially$).$

Answer rating: 100% (QA)

Situation 1 JG Ltd a Ethical Threats 1 Selfreview Threat Since your firm has provided accounting bookkeeping and internal control services to JG Ltd t... View the full answer