The following scenario relates to questions 11–15 Sycamore & Co is the auditor of Fir Co, a listed computer software company. The audit team comprises an engagement partner, a recently appointed audit manager, an audit senior and a number of audit assistants. The audit engagement partner has only been appointed this year due to the rotation of the previous partner who had been involved in the audit for seven years. Only the audit senior has experience of auditing a company in this specialised industry. The previous audit manager, who is a close friend of the new audit manager, left the firm before the completion of the prior year audit and is now the finance director of Fir Co. The board of Fir Co has asked if Sycamore & Co can take on some additional work and have asked if the following additional non-audit services can be provided: (1) Routine maintenance of payroll records (2) Assistance with the selection of a new financial controller including the checking of references (3) Tax services whereby Sycamore & Co would liaise with the tax authority on Fir Co’s behalf Sycamore & Co has identified that the current year fees to be received from Fir Co for audit and other services will represent 16% of the firm’s total fee income and totalled 15·5% in the prior year. The audit engagement partner has asked you to consider what can be done in relation to this self-interest threat. In relation to the composition of the current audit team, which of the following correctly identifies the fundamental principle which is at risk and provides an appropriate safeguard? A.A B.B C.C D.D Which of the following identifies the threat which could arise as a result of the finance director’s previous employment at Sycamore & Co and recommends an appropriate safeguard? A.A self-review threat; review the work performed by the previous audit manager B.A familiarity threat; a different audit manager should be appointed C.A self-review threat; change the existing audit plan D.A familiarity threat; the firm should resign from the engagement Ignoring the potential effect on total fee levels, which of the following options correctly identifies the threats to independence from providing the above non-audit services? A.A B.B C.C D.D Which of the following safeguards would NOT be relevant in mitigating the threat identified in relation to fees? A.Disclosure to those charged with governance that fees from Fir Co represent more than 15% of Sycamore & Co’s total fee income B.A pre-issuance review to be conducted by an external accountant C.The use of separate teams to provide the audit and non-audit services D.A post-issuance review to be conducted by an external accountant or regulatory body During the course of the audit of Fir Co, a suspicious cash transfer has been identified. The audit team has reported this to the relevant firm representative as a potential money-laundering transaction. Which of the following statements is true regarding the confidentiality of this information? A.Details of the transaction can only be disclosed with the permission of Fir Co B.If there is a legal requirement to report money-laundering, this overrides the principle of confidentiality C.Sycamore & Co is not permitted to disclose details of the suspicious transaction as the information has been obtained during the course of the audit D.In order to maintain confidentiality, Sycamore & Co should report their concerns anonymously