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Questions: 1.Identify and Evaluate the threat relating to Aurditors Independence. 2.Identify two Business risk in relation to purchasing of Spare part and Equipment. 3.Specify risks assosicated with the risk and its Impact on account of balances. Answers: 1.Identification and evaluation of threat relating to auditors independence Situation 1: It is required for auditors to comply with the standards of auditing while performing auditing procedures. For maintaining independency in the audit process, it is required to have approach of objectivity and integrity. Sometimes, the auditors provide non-audit services to their clients and such service might comprised of tax service. Such services are provided for amount in addition to fees received for audit services and non-monetary advantage such as gifts and kinds. In the first situation, auditors are required to promote the business of their client that is CJ needs to attract investors for business of their client Luxury travel holiday limited. In this regard, auditors faces the threat of advocacy while conducting audit. Providing audit services would lead to compromising objective of integrity that would seriously affect the ethics (Andon et al. 2014). Situation 2: In this particular situation, LTH are being provided some of extra and fringe benefits for maintaining good relationship with client and the audit service providers. It might be provided to auditors for availing benefits apart form services provided for conducting the auditing procedures. This is done for conducting the activities part from engaging in audit. There would question of independency would arise if the offers are accepted by auditors. If more benefits are received by auditors, this will lead to increase in threat to independency (la Rosa and Paul 2015). Situation 3: Some of the close family members of auditors involves parent, non-dependent child, spouse and siblings. The financial controller of business of LTH is the father of the proposed account. Since, Michael is son of the financial controller and if he accept the offer of becoming a part of the audit team, his integrity would be questioned and it would pose threat to his independency. Situation 4: If auditors becomes excessive close to the clients while performing the auditing activities, they tends to develop trust and become well acquainted with the clients business. Annette has been performing the auditing of companies and would have gained valuable information about the clients business resulting from her previous engagement with the LTH. It is not considered maintaining the integrity objective while carrying out the auditors own work. Identification of safeguard in relation to threats identified above: Auditors are not required to performance any service to their clients that would threaten his or her independency. This may involve providing some services that needs to be prohibited for maintaining the independency of auditors. Maintaining the effectiveness of audit committee of organization while encompassing transparency level- One of the vital tool in organization for maintaining the auditors independency is incorporating effective audit committee that would aligning the objectives of company with integrity of auditors in conducting the process of auditing (Soh and Martinov-Bennie 2015). The outcome of independency of auditors need to be made public, as the audit, committee must assess the independency and integrity objective. Rotating of auditors- The promotion of the objectivity of auditors will be done without involving considerable amount of cost. Rotation of auditors will help in removing the self-interest and threat of becoming over familiar with the business of their clients. Organization needs to maintain high quality of audit by making acquainted with clients historical and institutional knowledge. Maintenance of requirement of auditors independence at the global level- An organization needs to align to global accounting standard while maintaining ethical code of conduct while varying out the process of auditing (Pitt 2014). Some complexities are involved in the procedures of carrying the audit by maintaining consistent set of ethical standards at the international level. 2.Management of spare parts and equipment is regarded to be of crucial importance and steps need to be taken for mitigation of such risks. A company might incur financial loss due to downtime risk associated with managing of equipment and spare parts. The reason is also attributable to the technological implementation in spare parts management (Hodge 2014). The two types of business risks associated with the managing of spare parts and equipment are operational risks and strategic risks. Organization not capable of making large investment in inventories, it is required by them to adopt more suitable strategy for managing the equipment and spared parts. Strategic risk- The risk accompanied in the way organization manages their equipment and spare parts of inventories are related to strategic risk. As the management of financials of organization becomes standardized, the management of equipment and spare parts might be done by applying standards methods. On the other hand, it is certainly possible on part of management to employ ad hoc method for equipment and spare part management (Jackson 2015). In this method, there are no formulate policies and purchase managers are required to give their judgment on regular basis. Risks related to loss of managing of equipment and spare parts and the amount of investment made by organization in managing the inventories forms the basis of employment of appropriate approach for equipment management. Operational risk- The risk associated with the manner, organization execute their approach of managing the spare parts and equipment are the operational risk. Execution of appropriate strategic policies is not successful in many organizations. Management of organization may not have standardized approach for implementation of policy for stocking of decisions and could not recognize the inefficacy of pursing such implementation policies. If the organization seeks to manage their equipment and spare parts efficiently, they are required to manage the operational risks by making sure that their approaches have been implemented suitably (Hardy and Laslett 2014). Managing the operational risk will not lead to organization take any chance relating to inventory and spare parts management. 3.The types of risk that is related to operational risk is the detection risk. It is the risk that is associated with the fact that auditors have not been able to detect the material misstatement in the financial statement of organization. As per the risk, it would be concluded by the auditors that thee does not exist any significant error while conducting procedures of auditing. Such risk arises when auditors while conducting audit adopt no approach policies. The amount, volume and types of transactions has a serious impact of the account of balances of the organization. Accounts that are susceptible to detection risks comprise of sales account, purchase account and revenue account. Inherent risk is the risk that seems to be associated with the strategic risk. Such risk is attributable to the fact about omission of errors in the financial report. Such risks arises due to the fact other than the failure of internal control of the organization. When the auditors exercises high level of judgment in carrying out the auditing activities and the nature of business transactions are complex, there arises the possibilities of occurrence of such risks. The amount of receivables and the account of balance is greatly impacted by existence of such risks. Inherent risks are highly associated with the certain amount of transactional and accounts (Duncan and Whittington 2014). The classification of transactions has a great impact on the account of balances. Reference: Andon, P., Free, C. and Sivabalan, P., 2014. The legitimacy of new assurance providers: Making the cap fit. Accounting, Organizations and Society,39(2), pp.75-96. Duncan, B. and Whittington, M., 2014, September. Compliance with standards, assurance and audit: does this equal security?. InProceedings of the 7th International Conference on Security of Information and Networks(p. 77). ACM. Hardy, C.A. and Laslett, G., 2014. Continuous Auditing and Monitoring in Practice: Lessons from Metcash's Business Assurance Group.Journal of Information Systems,29(2), pp.183-194. Hodge, S.M., 2014.The Use and Effectiveness of the Internal Audit Function on an External Audit(Doctoral dissertation, Texas Womans University). Jackson, R.A., 2015. Partners in assurance: a good relationship with the audit committee can enable CAEs to better satisfy its members' expectations.Internal Auditor,72(3), pp.35-40. Knechel, W.R. and Salterio, S.E., 2016.Auditing: assurance and risk. Routledge. la Rosa, D. and Paul, S., 2015. Internal audits role in embedding governance, risk, and compliance in state-owned companies. Pitt, S.A., 2014.Internal audit quality: Developing a quality assurance and improvement program. John Wiley Sons. Porter, B., Simon, J. and Hatherly, D., 2014.Principles of external auditing. John Wiley Sons. Soh, D.S. and Martinov-Bennie, N., 2015. Internal auditors perceptions of their role in environmental, social and governance assurance and consulting.Managerial Auditing Journal,30(1), pp.80-111