Gold Star Auditors has almost completed an external audit of a large, important and long$-$term regular

client, Blue Skies Air Freight company. Suresh is a recently recruited, qualified accountant in Gold Star

Auditors team. He is given the task of auditing Blue Skies Air Freight because it is a long$-$standing client

and previous audits have always gone smoothly.

However, near the end of the external audit, Suresh has discovered an $$irregularity$$: a large cash payment

has been recorded but with no name for the receiver. The corresponding invoice is handwritten on

notepaper, with a signature that is scribbled and impossible to identify.

Suresh reports this $$irregularity$$ to his supervisor Annika. She is under pressure to finish this external audit

project by close of business that afternoon, so she advises Suresh to quickly seek an explanation from

Blue Skies Air Freight$$s finance manager, Huang. However, Annika reminds Suresh that it is now the final

day to complete this external audit project. The audit team at Gold Star Auditors operates under strict

time$/$cost pressures to conclude each project. Annikas need to get the external audit signed off by the CEO,

before close of business.

Annika warns Suresh: $$Blue Skies Air Freight is a long$-$standing client. I would be very surprised if there

was anything unethical or illegal about that payment. I have been auditing Blue Skies Air Freight for the last

five years and there;never been any problem. Huang is an friend from university and I$$m sure he would not

approve of anything unethical or illegal. So please don$$t upset Huang with any unneccesary questions.$$

Suresh decides to ask Huang for a quick explanation. Huang replies: $$Hey Suresh, nobody here at Blue

Skies Air Freight can remember what that payment was for, or who signed it$.$ You need to recognise that

$$real world$$ audits are sometimes a bit messy. Not all audits end in a nice neat way. Get on with finishing it$.$

Suresh tells his supervisor Annika what Huang actually said to him. Annika reluctantly agrees not to sign$-$off

the external audit while Suresh is still investigating the irregularity but she warns him again to consider

carefully if the irregularity is a potentially serious professional and$/$or legal issue that requires delaying

the sign$-$off.

Therefore, Suresh must now make a professional judgement. He can choose to:

a$.$ extend the external audit beyond the agreed project time$-$frame, to clarify: what that large cash

payment was for? Who signed the handwritten note? And who signed the money?

b$.$ alternatively, Suresh could simply get the audit signed off by the end of that Friday afternoon, with

no further probing, then enjoy the weekend.

Required:

The relevant Professional Skill to apply for this scenario is scepticism: probing the authenticity of an

$$irregular$$ accounting entry and questioning the veracity $($truthfulness and accuracy$)$ of Huang$$s

explanation.

Question $1$: Identify the main professional, regulatory and legal issues that Suresh is concerned about,

that are causing him to be sceptical about accepting the authenticity $($truth and validity$)$ of that large cash

payment to the unnamed receiver for the invoice handwritten on notepaper, with a signature that is

scribbled and too hard to identify.

Question $2$: Advise Suresh on the best professional way to solve the problem of his scepticism about the

handwritten note$$s authenticity $-$ versus the pressure to finish auditing Blue Skies Air Freight by the close of

business on that Friday afternoon.

Question $3$: Advise Annika on the correct actions that she should take, as a mid$-$level leader, to maintain

the professional conduct standards of auditors and protect the reputation and goodwill of Gold Star

Auditors.

Question $4$: As you have learnt, auditor independence must be maintained in external auditor $-$ client

relationships. Any failure to maintain independence creates risks. Show how Suresh could use the TARA model to make the best decisions and discuss any potential

consequences for the key stakeholders who may be affected: