Fraud, Professional Ethics and Auditor Independence - 20 marks

a) When assessing a client's integrity, the auditor will consider the client's willingness to allow the auditor full access to information required to form an opinion and pay a fair amount for the work completed. Explain why.(4 marks)

b) Mike is a very experienced auditor with unique expertise in the mining industry. As a result, Mike has been the lead audit partner for the audit at BKK Oil for the last seven years. Recently, Mike was approached by the board of BKK with an offer of employment as a director starting in two years' time. The only condition was that the audit work (for the year ended 30 June 2020) must be finished in six weeks and the independent auditor's report signed off before 15th August 2020, as the Annual General Meeting (AGM) has been scheduled for early September.Mike is aware that the audit of BKK normally takes at least nine weeks.

i) Identify and explain TWO possible threats to audit independence.(4 marks)

ii) Suggest appropriate actions and safeguards that could be put in place to reduce the threat to an acceptable level.(4 marks)

c) Two months before the end of the financial year, Greenlight Resort terminated the contract of one of its senior sales managers. Her employment was terminated after it was discovered she had worked in collusion with several customers to commit fraud. This included giving special discounts on room rates and event services, and reducing customers' period of stay and value of other services provided. The manager would then take direct payments from the customers. During the investigation process, it was discovered that the manager was the only one allowed to access the customer database and had authorisation to update prices. For more than two years, the manager had never taken any annual leave.

i) Identify and explain TWO fraud risk factors.(4 marks)

ii) Identify TWO key accounts that are potentially affected by the fraud. For each account, identify ONE key assertion that is at risk.(4 marks)