Question 1 (15 Marks) For each situation below identify and explain the threat and one fundamental principle that is comprised. An auditor has shares in a company which is an audit client of theirs. An accountant has compiled the financial statements for a client and was requested to also audit the statements. a The financial director of Baboo Ltd is very aggressive and dismissive of the audit function and audit team A chartered accountant values a client's shares and then leads the negotiations on the sale of the client's company The chartered accountant fails to report a fraud of a client because the perpetrator is a close friend and he is sympathetic to the interest of his friend. Question 2 2.1 (9 marks) The risk of the auditor getting it wrong" or giving opinions that are not 100% accurate will always be present and this is referred to as audit risk. Audit risk is better understood when the components of the risks are understood. Identify and explain the three components of audit risk. 2.2 (6 marks) The concept of materiality is fundamental when conducting an audit. An auditor makes an opinionated expression on the fair representation of financial statements with regard to all things material. Explain 3 items which best describe the nature of materiality