Linesh & Co is the auditor for Sendayan Bhd, an automotive manufacturing company. The firm is also the auditor for Aplha Sdn Bhd that had a contract with Sendayan Bhd to supply automotive parts. The following are the ethical issues that arise during the annual audit: i. Gita, who is the audit partner for Sendayan Bhd is also acting as the audit partner for Aplha Sdn Bhd. Sendayan Bhd has just initiate a proposal to renew its procument contract with Aplha Sdn Bhd for the next five years. Aplha Sdn Bhd has asked Gita to provide advice on the matter. ii. Anan who is the son of Gita had just graduated in Bachelor of Mechanical Engineering and is offered a position as an engineer at Sendayan Bhd. Anan is considering the offer, as Sendayan Bhd offerred a starting salary which is higher than the industry average. iii. An audit manager who is responsible for the audit engagement for Sendayan Bhd holds1,000 units ordinary shares in the company which amounted to less than 1% of the total shares issued. Gita just get to know about this matter after the engagement has started. However, she emphasised that she herself does not hold any shares in Sendayan Bhd. iv. Due to financial difficulties, Aplha Sdn Bhd had not paid their audit fees for the past three (3) years. In order to, overcome the unpaid audit fees, Aplha Sdn Bhd offered to supply Linesh & Co with new office furniture. The partner had accepted this offer in full consideration of the outstanding fees, even though the furniture was only worth 70% of the outstanding fees.

Required: Comment on each of the ethical issues above in the context of independence requirement as stated in the MIAs By-Laws (On Professional Ethics, Conduct and Practice). (10 marks)

B. Explain the following terms in respect of financial statements audit: i.

Independent assurance. (4 marks) ii. True and fair view. (6 marks)

C. Critically discuss five categories of threats to auditor independence under the By laws on Professional Ethics. (10 Marks)