Coopers and Anderson has recently appointed John White as the audit engagement partner with responsibility of the banking sector. His son has recently graduated from the top University in the country with a Masters Degree in Banking and Finance. He has been offered a Job at Workers Bank, which is a client of Coopers and Anderson for the past ten (10) years. This role would entitle him to shares in Workers Bank as part of his remuneration package.

Workers Bank operations has expanded, and the directors are considering establishing an internal audit department, and the finance director has asked the audit firm, Coopers and Anderson about the

differences between internal audit and external audit. If the internal audit department is established, and Coopers and Anderson is appointed as internal as well as external auditors, then

Workers Bank has suggested that the external audit fee should be renegotiated with at least 20% of the fee being based on the profit after tax of the company, as they feel this will align the interests of the firm.

Required:

(a) Using the information above:

(i) Explain the ethical threats which may affect the independence of Coopers and Anderson in respect of the audit of Workers Bank. (10 marks)

(ii) For each threat, explain how it might be reduced to an acceptable level. (10 marks)