a) Threats to independence and objectivity and their resolution:

• Ongoing consultancy services:
  • Threat: This creates both a self-interest threat (the firm may issue an unmodified audit report to retain consultancy fees) and a self-review threat (the firm may be reviewing its own advice).
  • Resolution: The firm should monitor the level of fees generated from Wellbeing as a percentage of the total fee income to ensure the firm is not dependent on the client. The firm should also consider refusing consultancy work if independence may be threatened, ensure an independent partner reviews the audit, and avoid performing management functions.
• Taxation services:
  • Threat: Preparing the tax computation creates a self-review threat since the audit will involve verifying the tax figures prepared by the firm.
  • Resolution: Safeguards such as using staff who are not part of the audit team to prepare the tax computation or having the tax calculation reviewed by an independent partner or manager should be applied.
• Appointment as a non-executive director:
  • Threat: This creates both a self-interest threat (since the partner would have a direct interest in Wellbeing’s performance) and a self-review threat (as the partner would be part of management and influence the audit).
  • Resolution: No safeguard can reduce these threats to an acceptable level, so the offer should be refused.

b) Matters and procedures to consider before accepting appointment as statutory auditor:

• Adequacy of resources:
  • Ensure there are sufficient staff and expertise to complete the audit on time without affecting other clients.
  • Consider availability of separate teams for Wellbeing and other clients in the healthcare sector to avoid conflicts.
• Integrity of client and management:
  • Investigate the potential for illegal activities (e.g., money laundering) and review the company’s financial history, accounting policies, liquidity position, and prior audit reports.
  • Review press comments, hearsay, and obtain references with the client’s permission.
• Professional clearance:
  • Obtain the client’s permission to contact the outgoing auditors to check if there is any professional reason not to accept the appointment.
  • If permission is refused, the appointment should not be accepted.

c) Benefits of providing both audit and non-audit services:

• Enhanced service quality:
  • The firm gains a full understanding of the client’s business, which can lead to a higher-quality audit and non-audit services, as they have greater knowledge of the client’s operations.
• Lower costs for clients:
  • Providing both services may result in lower overall costs for clients, as there is less duplication of effort and information sharing is streamlined.
• Convenience for clients:
  • Clients benefit from a one-stop-shop service, which is more efficient and convenient.
• Increased intellectual capital for the audit firm:
  • The firm attracts higher-caliber recruits, gaining more experience from working with clients on both audit and non-audit services.