Brian Smith CA is an auditor with Delite, a national audit firm. He is new to Delite and is currently working, for the first time, on the audit of the financial report of Downer Pty Ltd (Downer), a shipping company.

Downer has been a client of Delite's for many years. Because Downer is involved in international shipping, the audit of its contractual arrangements is an important part of the audit. Brian is well qualified to undertake such audit work because, in addition to being a qualified auditor, he is a qualified solicitor.

While reviewing the contracts, Brian discovered that Downer had recently merged with a local trucking firm, Carlton Pty Ltd (Carlton) for whom Brian worked when he first graduated. Brian was proud of his achievements at Carlton, and when he left, he had reached the position of senior legal counsel with the firm. However, his passion was in auditing, and so he moved to Delite. He was pleases to see that some contracts he had written for Carlton were being used as templates by Downer

Half-way through the audit, a member of the audit team became unwell and had to take time off work. This placed pressure on the remaining team members. Brian raised the matter with the audit partner, Jill Davis, stating that the quality of the audit work might be compromised because staff did not feel they had sufficient time to address all the requirements of the audit program. Jill told Brian that, while she appreciated that there was a problem, she did not wish to allocate more resources to the audit of Downer because of the additional cost that would be incurred. Furthermore, Sarah Smith stated, "the only way that more staff could be allocated to the audit of Downer would be to extend the completion date for the audit. This could have a negative impact because Downer required the audit to be completed quickly this year in order to apply for a government export grant. We cannot afford to risk losing Downer as an audit client", Sarah added, "with the recent slow-down in the economy, and the loss of some large clients, Downer is now our largest client. If you persevere, I will make sure you are considered favourably at the next promotion round".

Brian reluctantly accepted Jill's position, and was comforted somewhat when he confided in his sister, an experienced public sector internal auditor, who told him that, in her view, he had done the right thing in raising the matter with the audit partner.

REQUIRED:

On the basis of the facts provided above, and your understanding of the Code of Ethics for Professional Accountants:

(i) Identify three ethical issues that may impact the audit ofDowner's financial statements. (3 MARKS)

(ii) Explain why each of the issues identified above is of concern. (6 MARKS)

(iii) For each issue you identified, state the paragraph reference in APES 110 that provides guidance on the matter. (3 MARKS)