Question 1 (44 marks) Tiffany is the Human Resources Manager of Rose Limited in Hong Kong. Rose Limited has a number of production and management contracts with the government at cost-plus basis. Tiffany has created ten fictitious employees in the company's factory payroll. A number of pay cheques were issued to these ten fictitious employees from October to December 2019. April & Co have been the auditor of Rose Limited for the last two years and the audit for the year ended 31 December 2019 is currently in progress. Before the discovery of Tiffany's activities, April & Co has assessed the risk of material misstatement due to fraud at the financial statement level as low after performing the specific risk assessment procedures as required by auditing standards. Required: a) In theory, define fraud and explain the TWO types of misstatements that are relevant to auditor's consideration of fraud. And suggest TWO examples for EACH type of misstatements. (9 marks) b) And refer to Tiffany's case, discuss which ONE type of fraud is related to the case. (2 marks) c) Explain THREE possible impacts (be specific to which accounts) of Tiffany's activities on Rose Limited's financial statements. Suggest and explain ONE assertion for EACH account that will be affected? (7 marks) d) Suggest THREE control activities from Rose's management point of view to prevent or detect Tiffany's activities. Be specific. (6 marks) e) Explain internal control and how does internal control benefit Rose Limited. (4 marks)