Confusion between two answers

Question: The invoice is addressed to Valerie Hobson, the manager responsible for the audit of Wallace Co. The invoice relates to the rental of an area in Wallace Co’s empty warehouse, with the following comment handwritten on the invoice: ‘rental space being used for storage of Ms Hobson’s speedboat for six months – she is our auditor, so only charge a nominal sum of $100’. When asked about the invoice, Valerie Hobson said that the invoice should have been sent to her private address. You are aware that Wallace Co sometimes uses the empty warehouse for rental income, though this is not the main trading income of the company.

Anwser: Being the audit manager, Valerie Hobson is clearly in a position to influence the outcome of the audit. She appears to have entered into a private commercial transaction with her client. Ethical Standard 2 Financial, business, employment and personal relationships does not prohibit such commercial transactions so long as they are:
– in the normal course of business,
– at arm’s length, and
– the value is not material to either party.
In this case the transaction is in the normal course of business for the client. Rental of storage space is not the main business of Wallace Ltd, but it appears that this type of transaction is quite common for the company. However the note on the invoice indicates that a substantial discount has been offered and accepted, and so the transaction is not at arm’s length. The value is not material to Wallace Ltd, but could represent a significant discount to normal commercial terms to the audit manager. ES 4 states that goods and services can be received from an audit client, but only if the value is clearly insignificant.
A self-interest threat is clearly established. Valerie Hobson is benefiting financially from her position as audit manager. She may compromise the audit approach – which has recently been planned – and furthermore she may compromise the audit opinion to keep the client happy. She may also have other audit clients where bias could have occurred.

Question: Bill Co has recently completed the development of a luxury new office building in Newtown. Several of the office units are empty, and the management of Bill Co has offered the office space to our firm for a nominal rent of $100 per year.

Answer: Bill Co has offered office space to our firm at a nominal rent of $100 per year, which, for a luxury office building, must be significantly below the market rate. This should be considered in light of IFAC’s Code of Ethics for Professional Accountants, which states that an offer of gifts or hospitality may create a self-interest, familiarity or intimidation threat to objectivity and independence. The audit firm should consider the nature, value and intent of the offer. If the value were trivial and inconsequential, then the offer could be considered. However, with the rental charge being so small compared to the likely market value, this is unlikely to be the case.

In question 2, will it be marked wrong if I mentioned about business relationship as the first answer and how it is not on an arm’s length transaction? Also how is this considered a gift since it is a rent provided? Please also explain how familiarity and intimidation threat is created from this.