You have been asked by your audit client, Bolts Ltd (Bolts), to prepare a report that analyses the potential acquisition of Steel Pty Ltd (Steel). Prior to conducting your analysis, you decide to verify the accuracy and completeness of the cash flow statement provided by Steel for the year ended 30 June 2012. After reviewing a draft of your analysis, the chief financial officer (CFO) of Bolts has asked you to focus your attention on the sales and profitability of Steel and to avoid the distraction of cash flow reporting. He suggests that the acquisition will provide substantial future financial benefits to Bolts and that confusing the board with cash flow issues would not be helpful to the acquisition or to the likelihood of your being asked to undertake similar engagements in the future.

Required List two threats to compliance with the fundamental principles that may exist resulting from your discussion with the CFO, and identify the fundamental principles at risk of being breached. (500 words)