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Kayla Inara is the audit engagement partner for Sejati Bhd, a company listed on Bursa Malaysia. She managed to secure the job due to her
Kayla Inara is the audit engagement partner for Sejati Bhd, a company listed on Bursa Malaysia. She managed to secure the job due to her friendship with the Managing Director, Datuk Sahar. Despite the fact that the client had not paid the audit fee for the previous two years due to a cash-flow problem, Kayla is optimistic that the situation will be resolved quickly and continues to accept the appointment for the current year audit. The audit manager in charge of Sejati has just announced that he is leaving the audit firm to join Sejati as the financial controller. Sejati operates 15 phamarcies. The company's year-end is 31 March 2021. Kayla Inara instructed the audit senior to identify relevant audit risks from the notes below that she obtained from the meeting with the finance director of Sejati. Sejati has spent RM2-5 million in refurbishing all of its phamarcies, as part of this refurbishment programme their central warehouse has been extended and a smaller warehouse, which was only occasionally used, has been disposed of at a profit. In order to finance this refurbishment, a sum of RM2-0 million was borrowed from the bank. This is due to be repaid over five years. The company will be performing a year-end inventory count at the central warehouse as well as at all phamarcies on 31 March. Inventory is valued at selling price less an average profit margin as the finance director believes that this is a close approximation to cost. Sejati used computerized inventory system in order to keep track of all the inventories. During the audit, the senior in charge of the audit discovered that one of Sejati's cashiers had embezzled RM1,000. However, he decided that the amount is immaterial and did not probe to the bottom. Furthermore, he failed to discover overstatement of inventory because he did not follow the audit program. He also did not question the high amount of fixed deposits purportedly held by the company in ABC Bank even though he noticed that, at the same time, the company has high amount of loans. He accepted the offer by the company to get the confirmation by the bank as it would save him the effort of sending the request for confirmation. The following events were brought to Kayla Inara's attention after the audit is done but before she issues the audit report: 1. A lawsuit was lodged against Sejati for breach of contract on 16 April 2021. 2. On 2 May 2021, Sejati made an out of court settlement against a lawsuit filed in 2020 and currently disclosed as a contingent liability. 3. As a result of prolong closures for some of the pharmacies due Covid 19 issues, Sejati decided to lay off some staffs. The remaining staffs protested and went on strike on 28 May 2021. To date, the strike is still unsettled. Required: a) Evaluate two (2) ethical and professional issues that exist in the above case study
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