You are the audit partner of David & Associates ("DA"), working on the audit of Australian Tourist Buses ("ATB") for the 2017 financial year. ATB is a provider of luxury bus trips all around Australia, including both interstate capital city travel and conference and holiday packages. The net profit before tax of ATB for the 2017 financial year is $14,541,000 while net assets total $231,982,000. Part A (8 Marks) You are reviewing the 2017 audit working papers and note that the assurance services senior has documented a number of situations that may lead to a breach of independence for DA. Situation 1 It has been documented that the ATB Financial Controller has gifted the three audit team members with two free luxury holiday packages each. The audit manager has concluded that the key threat to independence in Situation 1 is 'self-interest'. Situation 2 The audit team has documented that ATB is intending to launch a new customer loyalty program. The CFO of ATB has guaranteed that if the audit team convinces DA and five of its biggest clients to sign an exclusive corporate travel arrangement with ATB, the audit team will receive immediate platinum status (normally requiring a customer to have accumulated one million points), giving them a host of benefits. The audit manager has concluded that the key threat to independence in Situation 2 is 'familiarity'. Situation 3 The audit team has noted that DA has put forward a proposal to ATB to provide consulting services. The CFO of ATB has told the audit team that if they do not remove comments in the audit summary review memorandum to be provided to the audit committee about a weakness in the revenue and receivables process, he will not award DA the consulting work. The audit manager has concluded that the key threat to independence in Situation 3 is 'advocacy'. 

REQUIRED: 

Explain whether the audit manager has correctly identified the key potential threat to independence for each of Situations 1, 2, and 3 above. Your answer should clearly identify what you believe is the key threat to independence in each situation

Answer rating: 100% (QA)

In Situation 1 the audit manager correctly identified the key potential threat to independence as se... View the full answer