WHAT ACTION SHOULD FELLOWES AND ASSOCIATES TAKE TO ELIMINATE THE POTENTIAL THREATS TO INDEPENDENCE IN SITUATIONS (1) AND (2) ABOVE? WHAT SAFEGUARDS SHOULD BE INSTITUTED TO REDUCE THE RISK OF SIMILAR INDEPENDENCE THREATS OCCURRING IN THE FUTURE?

The object of this assignment is to assist students to develop critical analysis skills in relation to auditor independence and issues in accepting audit engagements.
This is a written assessment with a weighting of 30%. A marking rubric has been provided to assist you with the marking scheme for this assessment task. The written assessment is to be presented in report format, the report is due on Thursday 5th January 2017 at 11.45pm AEST (Week 7). Moodle will be available to accept assignments from 1st December for students who wish to submit in week 4. The report is to have a maximum length of 1,000 words.
You have graduated with your accounting degree and recently commenced work with Fellowes and Associates Chartered Accountants. As a recent University graduate with top marks in your audit course, the firm’s audit partner, Tania Fellowes, has asked you to prepare a report for the firm’s partners.
Background information
This assignment is based on the Professional Application Question 2.37 in your e-text. Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2014 year Fellowes and Associates gained a new client, Health Care Holdings Group (HCHG), which owns 100 per cent of the following entities:
• Shady Oaks Hospital, a private hospital group
• Gardens Nursing Home Pty Ltd, a private nursing home
• Total Cancer Care Limited (TCCL), a private oncology clinic that specialises in the treatment of cancer.
Year-end for all HCHG entities is 30 June.
TCCL owns two relatively old linear accelerators used in radiation therapy. Recently, radiographers using these linear accelerators have raised concerns that they have adverse radiation impacts on patients.
The CEO of TCCL, Betty Buick, has approached Tania Fellowes, the audit partner responsible for the financial report audit, about undertaking an engagement in respect of the linear accelerators. Betty has requested Tania provide an opinion that the linear accelerators are fit for use. Betty pointed out that the TCCL audit is up for tender the following year and suggested Fellowes and Associates might like to take on the linear accelerators engagement without charging a fee as a gesture of goodwill.
Prior to the appointment of Fellowes and Associates as the auditor for the group which controls TCCL, HCHG, for the 2014 financial year, some preliminary analysis by Tania Fellowes identified the following situations:
1. One of the accountants intended to be part of the 2014 audit team owns shares in HCHG. The accountant’s interest is not material to him.
2. Fellowes and Associates was previously engaged by HCHG to value its intellectual property. The consolidated balance sheet (statement of financial position) as at 30 June 2014 includes intangible assets of $30 million, which were valued by Fellowes and Associates on 1 March 2014 following HCHG’s acquisition of the subsidiary Shady Oaks Hospital. The intangibles are considered material to HCHG.

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