Question 1 (25 marks) Part A You are the audit manager of Ace & Co. and you are planning the audit of Pharma Co., a non-listed company which has been an audit client for 12 years and specialises in the manufacturing of medical products. The engagement partner for Pharma, James Chan has remained unchanged for the past 10 years. The audit fee from last year for Pharma is still outstanding but directors suggest it will be paid in the coming months. In addition, as Pharma's business is expanding rapidly, the finance director of Pharma, Catherine Lim has suggested that the current year audit fee to be based on 5% of the firm's net profit. Catherine has also requested the engagement partner, James to negotiate with the tax authorities on Pharma's behalf. James' son has also recently been appointed as a finance manager in Pharma on a full-time basis. 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. (10 marks) (You should use a TWO (2) column format using the headings 'Threats' and 'Safeguards'.) MRN