QUESTION 2 [25] During the current financial year the following matters arose at Harbor (Pty) Ltd, one of your audit firms clients. Both matters were uncovered by the newly established internal audit department. 1. It emerged that Jim Jones, the head store man, had been for a number of years operating the following scheme, one of his duties was to check deliveries of raw materials for quantity against copy purchase orders prepared by the purchasing department. In collusion with a suppliers delivery clerk he has consistently accepted short deliveries, but signed goods received notes for the quantities of goods ordered. The delivery clerk subsequently sold the goods short-delivered and shared the proceeds with Jim Jones. 2. Sam Smith, the purchasing manager, and the financial director, Mr. Bill Brown, had an arrangement with a major supplier to the company whereby they would accept a commission from the supplier in their personal capacities for placing orders with that supplier. This has also been going on for some years. The managing director of Harbor (Pty) Ltd immediately informed you as auditor of both these matters. Required: 1.1 Discuss the auditor's general responsibilities with regard to the prevention and detection of fraud. (8) 1.2 With regard to each of the matters described, briefly discuss whether it should be classified as irregular acts or as illegal acts, and indicate what action you would have taken had you discovered the matter while performing the audit. (17)