Question 4 You have been asked to review the audit files of your audit firm Jones & Co as part of the firms quality control procedures. In the audit files of Flights Galore Ltd for the previous year, Simon Jackson the audit senior had brought a number of matters to the attention of the partner in charge, Peter Smith. The audit fee for the year was invoiced at 15,000. The following matters came to light: i. The new managing director of the company Alfred Mooney had indicated in the correspondence file that he really enjoyed the holiday he had spent with Peter Smith and his family, at his villa in the South of France. Alfred had made particular mention of the fact that Peter really enjoyed the yacht trip that had also been arranged. ii. In order to finance investments in new projects 'Flights Galore' had taken out a substantial bank loan during the year. The loan agreement states that in order to secure the loan and maintain favourable lending rates, the company's gearing ratio (i.e. the proportion of loan capital to equity capital) must not exceed 25%. The gearing ratio for the previous year is identified at 20% and the management accounts for the current year show a gearing ratio of 22.75%. iii. Other work completed by the firm during the year and invoiced, comprised assistance with recruiting the managing director. The fee amounted to 20% of the salary and amounted to 20,000. The engagement partner had cleared these queries by writing "not relevant to the audit of the financial statements". REQUIRED a. Comment on the situation described above and state whether there are any ethical issues that should be considered (Note: Develop the scenario further to illustrate the points made). (10 marks) b. Describe and explain the ACCA fundamental ethical principles as applied to auditors. (10 marks)