Karen used 6.35% of gross profit in determining materiality of $56,789 in her audit of Bill-Durrs Inc., a company that builds replacement engines for tractors and combines. She used the $60,000 amount as a performance materiality threshold to plan her audit program, identifying account balances and transactions to be tested. She also used materiality as a guide when deciding upon the appropriate audit opinion in her report. As a partner the firm, you are reviewing the evidence obtained during the field work phase of the audit Sharon obtained sufficient appropriate evidence showing that the bad debts were understated by $200,000. The bad debt relates to a sale made 2 years ago; management has refused to adjust for this misstatement. This was the only material misstatement found during the audit. Required: 1. What is the difference between audit procedures and audit standards? (3 marks) 2. Discuss the conflict between the need for an audit firm to perform quality services and its desire to make a profit in the context of the investor's need for reliable information. (3 marks) 3. In the context of auditing, explain the role and components of audit risk? (3 marks) 4. How can materiality and audit risk support an auditor in a financial statement audit? (3 marks) 5. Is the misstatement of bad debts a GAAP departure or a scope limitation? Explain your answer. (2 marks) h 6. What type of audit opinion do you think should be recommended to Sharon? Explain your answer. (2 marks)