The following situations involve Sarah Scruples, an audit senior with the accounting firm of Fobel & Hirst. She is involved with the audit of Freelance Ferries Ltd (Freelance).

1. The accounts clerk of Freelance resigned two months ago and has not been replaced.

As a result, Freelance’s transactions have not been recorded and the books are not upto-

date. To comply with the terms of a loan agreement, Freelance needs to prepare interim financial statements but cannot do so until the books are posted. The Managing Director of Freelance wants Sarah to help them out because she performed the audit last year. The audit partner of Fobel & Hirst allows them to use her for one month before the start of the annual audit.

2. During the annual audit of Freelance, Sarah discovered Freelance had materially understated net income on last year’s tax return. The client is unwilling to take corrective action. Sarah decides to inform the taxation office.

3. On completion of the fieldwork of the audit of Freelance, Sarah is offered six free cinema tickets by the Managing Director. He tells her this gesture is meant to show his appreciation of a job well done. Sarah accepts the tickets.

4. The Partner of Fobel & Hirst is not very pleased with the time Freelance is taking to pay its audit fee for the year. He decides to take £5000 out of a trust fund that Fobel &

Hirst holds for Freelance. He intends to replace it as soon as Freelance send payment of their audit fee.

Required 

For each of the above four situations

(a) identify the ethical issues involved, and

(b) discuss whether there has or has not been any violation of ethical conduct. Support your answers by reference to the relevant professional statements.