Moonlight Rose Entertainment Limited (MRE) was established in Hong Kong. Its major operation is organizing concerts and entertainment events in Hong Kong. Assume you are Ms Luna Tin, an audit partner of Blue Sky CPA Limited (BS). You are the in-charge of the financial statement audits for MRE. In a lunch meeting with Mr Albert Yeung, Chief Financial Officer of MRE, the following information came to your attention.

Recently, MRE has liaised with Miss K, a famous Korean pop band, to hold concert in Hong Kong. As an appreciation of your audit service, Albert presents you with a gift which includes two VIP tickets to Miss K Live in Hong Kong. Each ticket costs HK$7,000. Included in the VIP tickets package, you will have the chance to shake hands and take photos with Miss K.

MRE would like to invite BS to carry out an internal audit project. The project consists of reviewing the companys existing operation processes and controls, providing suggestions for enhancement and setting out a detailed control manual for the company.

An accountant of MRE will soon be on maternity leave for four months. Therefore, Albert is exploring if the company can borrow a qualified accountant from BS for four months. The qualified accountant will work with and report to Albert, the CFO, directly.

Required:

Discuss any professional and ethical issues arising from the relationship between MRE and BS. Recommend any possible safeguards to solve the ethical problems, if necessary.

[Total for Question 3: 15 marks]