Question 4 Zaki & Partners (Zaki) has been the auditor of ZARA Sdn Bhd, a private limited company. The company's financial year end is 31 December each year. During the financial year ended 31 December 2007, ZARA has applied for a substantial amount of bank loan and one of the bank's requirements is that the audited financial statements should show a current ratio of at least 2:1. On 28 April 2008, during the final stage of the audit, Zaki received an anonymous letter indicating that a five (5) years lease by ZARA ( as lessee) of the company's building, accounted for in the financial statements as an operating lease was in fact a finance lease. The letter also stated that there were a secret written agreement with the lessor to modify the lease and treating it as an operating lease. Zaki confronted the management of ZARA, who admitted that the secret agreement existed but it was necessary to treat the lease as an operating lease in order to meet the current ratio requirement of the pending loan and that nobody would ever discover the secret agreement with the lessor. The management also urged that if Zaki did not issue their report by 28 April 2008, ZARA would sue them for substantial damages as a result of not getting the loan. Due to the pressure from the client and the fact that the audit file contained a copy of the five (5) years lease agreement that supported the operating lease treatment, Zaki issued an unqualified audit report on 28 April 2008. Despite the fact that the loan was granted by the bank, ZARA went into liquidation. Eventually, the bank sued Zaki for its losses on the loan, and the lessor also sued Zaki for the unpaid lease rentals