For Each of the Following, Indicate If There Is a Threat

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The Answer is (a) There is a self-interest threat in that there is the possibility of client reliance for John Schmidt. A safeguard against this is to regularly review the assurance fees earned from each client in comparisons to total fees from all clients.
(b) Car dealers are not in the business of selling cars below cost. The discount below cost is similar to a gift and therefore gives rise to a familiarity threat, in that James Para, the auditor has accepted a "gift" from his client. A safeguard for this is to have a firm policy whereby non trivial gifts from clients are not accepted.
(c) This leads to a self-interest threat as significant fees outstanding are considered to be similar to a loan to the client. It could also lead to an intimidation threat by the client, in that the client could threaten to leave the firm and the auditor would be faced with a large receivable write off. A possible safeguard is to ensure all fees in arrears are collected before performing additional services to prevent any further fee dependence.
(d) This is a familiarity threat in that family members of the auditor own shares of the company under audit. It is also a self-interest threat in that his wife owns shares in the entity. There is no appropriate safeguard in this situation. Frank should resign from the engagement immediately.

For Each of the Following, Indicate If There Is a Threat

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