OrganicFood Sdn Bhd is a health supplement business that has been run as a family company for 30 years by Mr Chou and Mrs Natalia. As a husband and wife, they have always been passionate campaigners for adequate nutrition and are more concerned about the quality of the supplements they sell than the financial detail of their business.

Since the company started in 1988, it has been audited by Mohan & Co., a local audit firm. Mr Mohan has overseen the OrganicFood Sdn Bhd's audit for all of the 30 year history (rotating the engagement partner) and has always taken the opportunity to meet with Mr Chou and Mrs Natalia informally at the end of each audit to sign off the financial statements and to offer a briefing and some free financial advice in his role as what he calls, 'auditor and friend'. Mr. Chou have not really concerned with financial performances, as long as the business keep on going and provide continued employment for themselves and their son, Franco.

Whilst Mr Chou and Mrs Natalia still retain a majority shareholding in OrganicFood Sdn Bhd they have gradually increased Franco's proportion over the years. They currently own 60% to Franco's 40%. Franco was appointed as a director, alongside Mr Chou and Mrs Natalia, in 2016.

During the audit for the year ended 31 March 2018, a member of Mohan & Co. was performing the audit as usual when he noticed a dramatic drop in the profitability of the business as a whole. He noticed that whilst food supplements sales continued to be profitable, a large amount of inventory had been sold below cost to Naturally Legends Sdn Bhd with no further explanation and it was this that had caused the reduction in the company's operating margin. Each transaction with Naturally Legends Sdn Bhd had, the invoices showed, been authorised by Franco.

Mr Mohan was certain Mr Chou and Mrs Natalia would not know anything about this and he prepared to tell them about it as a part of his annual end of audit meeting. Before the meeting, however, he carried out some checks on Naturally Legends Sdn Bhd and found that it was a separate business owned by Franco and his wife. Mr Mohan's conclusion was that Franco was effectively stealing from OrganicFood Sdn Bhd to provide inventory for Naturally Legends Sdn Bhd at a highly discounted cost price.

Although Mr Mohan now had to recommend certain disclosures to the financial statements in this meeting, his main fear was that Mr Chou and Mrs Natalia would be devastated if they found out that Franco was stealing and that it would have long-term implications for their family relationships and the future of OrganicFood Sdn Bhd.

Questions

a) Explain why the auditor profession held by Mr. Mohan is a professional. (3 marks)

b) Discuss the professional dilemmas faced by Mr Mohan. (3 marks)

c) Describe the 3 (THREE) fundamental principles that are relevant to the case. (9 marks)

d) Discuss the 2 (TWO) threats faced by Mr Mohan. (6 marks)

e) Advise Mr Mohan of the most appropriate course of action. (4 marks)