During the current financial year the following matters arose at Harbour (Pty) Ltd, one of your audit firm's clients. Both matters were uncovered by the newly established internal audit department. Page 15 of 25 FACULTY OF COMMERCE, MANAGEMENT AND LAW OLD CURRICULUM MODULES 1.It emerged that Jim Jones, the head storeman, had been for a number of years operating the following scheme. One of his duties was to check deliveries of raw materials for quantity against copy purchase orders prepared by the purchasing department. In collusion with a supplier's delivery clerk he has consistently accepted short deliveries but signed goods received notes for quantities of goods ordered. The delivery clerk subsequently sold the goods short delivered and shared the proceeds with Jim Jones. 2. Sam Smith, the purchasing manager, and the financial director, Mr Bill Brown, had an arrangement with a major supplier to the company whereby they would accept a commission from the supplier in their personal capacities for placing orders with that supplier. This has also been going on for some years. The managing director of Harbour (Pty) Ltd immediately informed you as auditor on both these matters. YOU ARE REQUIRED TO: (a) Discuss the auditor's general responsibilities with regard to the prevention and detection of fraud. (8) (b) With regard to EACH of the matters described, discuss whether they should be classified as irregular acts or as illegal acts and indicate what action you would have taken had you discovered these matters while performing the audit. Matter 1 (6) Matter 2