Case Study 2 It was during the beginning of 2019 that the FLY Airlines Company (hereafter the FLY Airlines) appointed PMG Auditing Company (hereafter PMG) to undertake the statutory audit of financial statements of the company. While planning for a change, FLY airlines contacted many auditing firms and finally selected the PMG. One of the board members of FLY airlines is also part of the PMG, as one of their investors. So, FLY airlines considered that PMG can provide a better auditing service compared to other auditors. As FLY airlines considered PMG as their subsidiary concern, they also provided 20% discount for PMG staff for traveling in FLY airlines. Considering the situation, PMG management assigned four of its junior staff members to conduct the audit of FLY airlines. They were also informed that, in case of any discrepancy in the accounting statements, it has to be informed to the senior auditor in the PMG, who will then address these discrepancies with the airline's management team. One of the reasons behind assigning junior auditors in completing the audit services is the fact that PMG was also involved in setting up an accounting system for the airlines. Hence, I Pages the PMG management knows that there are less chances of errors, as the system is set in such way to signal errors as and when it happens. However, the accounting system is not capable of detecting willful frauds in the process. As the Airline sector is undergoing tremendous pressure from the shareholders, the CFO believed that the contact with PMG management will help them to project a better revenue for the company. During 2015, when the FLY Airlines raised funds through public issue, PMG bought 15% of FLY airline shares, which currently is trading at a market price of OMR32.5. The share price is expected to grow, if the company reports a growth in their profitability indicators 1. Based on the above case, answer the following: (Maximum word count for Case Study is 400 Words) (4+4+2 -10 Marks) Identify and explain the various threats which may affect the independence of PMG in auditing FLY Airlines. Do you think the various threats faced by PMG are in acceptable Level? If you are an employee in the PMG, how do you evaluate the risks involved? What do you suggest? Should PMG accept the offer for auditing FLY Airlines? 2. 3