In the course of their professional practice, professional accountants are frequently faced with ethical situations similar to the situations discussed below, which may threaten their compliance with the fundamental principles of professional conduct. Situation 1 Peter Dlamini is the audit manager on the audit of Mountainslide (Pty) Ltd, a company that manufactures abseiling equipment. As they are both abseiling fanatics, Peter Dlamini and Joseph Jumper, the financial director of Mountainslide (Pty) Ltd, have become close friends. As a result, Joseph Jumper has arranged for Mountainslide (Pty) Ltd to sponsor Peter Dlamini to attend the world extreme games (which has an abseiling event). The sponsorship is for the next three years and covers all of Peter Dlamini's travel and equipment costs. Situation 2 KMGO Auditors recently completed the audit of Edpar Retail (Pty) Ltd, a company that has been in operation for the last three years. Due to liquidity problems, Edpar Retail (Pty) Ltd has been unable to pay its audit fee for the current year although the amount is only R78 000. The financial director of Edpar Retail (Pty) Ltd has suggested the following: 1. KMGO Auditors will invoice Edpar Retail (Pty) Ltd an additional R22 000 in audit fees making the amount owed R100 000 . 2. The amount of R100 000 will be converted into a long-term loan repayable in five years' time. Interest at 13% per annum will be charged. Situation 3 Clint Eastwest is a trainee accountant on the audit of ChickenForU (Pty) Ltd which is a rapidly expanding national fast-food chain. Clint Eastwest's girlfriend is an intern at a local estate agent. Whilst reading the minutes of the most recent directors' meeting, he noted that ChickenForU (Pty) Ltd intended to open a drive-through fast food outlet in his hometown but would need to purchase two properties on which to set up the outlet. The minutes identified the properties as well as the amounts that ChickenForU (Pty) Ltd was prepared to pay. 69 2 Both amounts exceeded the market value of the properties as ChickenForU (Pty) Ltd was very keen to obtain these specific properties. That evening Clint Eastwest told his girlfriend about this and the following day she lost no time in contacting the owners of the properties, telling them that she had heard rumours of interest in their properties and that she knew what the interested party would offer. She did not disclose the name of the company or the amounts but promised to do so if the owners agreed to her negotiating the deal, in return, she would receive an estate agent's commission on the sale price. REQUIRED: Identify the fundamental principle(s) that have been breached as well as the type of threat(s) in each of the above three situations. You must justify your answer for both the fundamental principle(s) as well as the type of threat(s). The mark allocation is as follows: - Situation 1 (7 marks) - Situation 2 (7 marks) - Situation 3 (10 marks) Communication skills: Layout and clarity of expression (2 marks)