Reference no: EM133119590
Question - Ultra Glass Ltd (Ultra) is one of Australia's leading glass manufacturers engaging in the production of float glass, automobile glass and construction glass. Jack and Sarah own the majority of the shares in the Ultra. Jack is the chairman of the board of directors, and Sarah is a director as well as the CFO of Ultra.
In January 2021, Sarah approached your audit firm, BWH Partners (BWH), and asked for assistance in investigating the value of one of Ultra's patents. The patent was acquired following Ultra's acquisition of another glass manufacturer. This patent is considered as material intangible asset to Ultra.
Sarah is very happy with BWH's high quality work on the patent investigation. In February 2021, Sarah invited BWH to audit Ultra's financial report for the year ended 30 June 2021. Ultra was audited by a small audit firm in 2020. Ultra received a qualified audit opinion in 2020 and Sarah was not happy, so she decided to change audit firm. One of the partners at BWH went to school with Jack and has been friends with both Jack and Sarah for many years. Sarah offered to pay the audit fees with 2,000 units of Ultra share with market value of more than $60,000, which is far beyond the required audit fees of $40,000.
Required -
(a) Identify and explain three (3) significant threats to independence for BWH Partners in accepting the audit of Ultra Glass Ltd.
(b) Explain three (3) relevant and practical safeguards that BWH Partners or Ultra Glass Ltd could implement to reduce the threats.
(c) Besides threats to auditor independence, list three (3) matters that should have been considered before accepting new clients.