(a) State the FIVE threats contained within Auditor's Code of Ethics and Conduct and for each threat list ONE example of a circumstance that may create the threat.

(b) You are the audit manager of DT & Co and you are planning the audit of LVF Co, which has been an audit client for four years and specialises in manufacturing luxury mobile phones.

During the planning stage of the audit you have obtained the following information. The employees of LVF Co are entitled to purchase mobile phones at a discount of 10%. The audit team has in previous years been offered the same level of staff discount. During the year the financial controller of LVF was ill and hence unable to work. The company had no spare staff able to fulfill l the role and hence a qualified audit senior of DT & Co was seconded to the client for three months. The audit partner has recommended that the audit senior work on the audit as he has good knowledge of the client. The fee income derived from LVF was boosted by this engagement and along with the audit and tax fee, now accounts for 16% of the firm's total fees.

From a review of the correspondence files you note that the partner and the finance director have known each other socially for many years and in fact went on holiday together last summer with their families. As a result of this friendship the partner has not yet spoken to the client about the fee for last year's audit, 20% of which is still outstanding.

Required:

(i) Describe the ethical threats which may affect the independence of DT & Co's audit of LVF Co; and

(ii) For each threat explain how it might be avoided.