Question 1 (25 marks) Part A You are an audit senior in the audit firm of Lincoln & Co (Lincoln). You have been deployed to the audit of Watson Ltd., a non-listed company which specialises in the manufacturing of musical instruments. Your firm has been the auditor of Watson for the past ten years and Mr Eugene Tan has been the engagement partner from the start. Due to inadequate accounting staff, Watson has also engaged your audit firm to provide accounting and taxation services this year. However, you have noted that the audit fee for last year is still not paid and you are worried that Watson may continue to delay payments. Watson has also suggested that the current year audit fee is renegotiated to be based on a percentage of Watson's net profit for the year. Since your firm is providing taxation service this year, the managing director of Watson has informed you to negotiate with the tax authority on some outstanding issues. In appreciation for your assistance, the managing director has suggested to give the audit team a 40% discount to all of Watson's musical instruments. Required: (a) From the information above, identify and explain FIVE (5) ethical threats to the auditor's independence. (10 marks) (b) For each of the threat identified in (a), suggest the safeguard(s) to reduce the threat to an acceptable level. (You should use a TWO (2) column format using the headings Threats' and 'Safeguards'.) (10 marks)