This paper consists of 2 sections. Section A: Answer all THREE (3) questions. Section B: Answer any ONE (1) out of TWO (2) questions SECTION A Question 1 ASK & Associates was engaged to audit BellKoy Malaysia. Several staff who were involved in the audit have attended training program on effective auditing methods. The audit manager spent most of her time in the field planning the audit, supervising the staff, and reviewing their work. Inventory was significant to BellKoy Malaysia. There are more than 50 sites in which the inventories are located. The inventory of the company was pledged as collateral for a loan to CIMD Bank. Auditing the inventory involved verifying the physical stock count, value and recording of inventory. The audit manager expressed concern on the conduct of stock count at different locations on different day to the management. The CEO specified that it was impractical to conduct stock count on the same day simultaneously because of manpower shortages. After discussion, the audit manager agreed to it, after the CEO provided a signed statement stating no other practical alternatives are available. During the stock count procedures, at least one auditor was present at the site and carried out observation. A year later, it was discovered that material misstatement occurred in regards to inventory. Middle management had conspired to materially overstate inventory to cover up losses resulting from mismanagement. Inventories were transported at night to other sites after they had been counted in on site. CIMD Bank sued ASK & Associates. Required: a) Explain the matters that should be considered in determining whether ASK & Associates is liable to CIMD bank in respect of the fraud. (18 marks) b) Explain actions that the auditors could have taken to prevent such a legal action from arising. (7 marks) (Total 25 marks)