Question

A financial scandal has swept through London and the United Arab Emirates, centered on allegations of fraud at two companies. Both NMC Health Plc and Finablr Plc have had their shares suspended in London, with NMC losing its place in the FTSE 100 index of leading U.K.-listed companies.

The Middle East's largest hospital operator had overpaid for assets, inflated cash balances and understated debt. NMC shares plunged, falling by more than 60% by the time they were halted on the London Stock Exchange in February -- barely 2.5 years after joining the likes of HSBC Holdings Plc and AstraZeneca Plc in the FTSE 100. An investigation instigated by NMC founder Shetty uncovered "serious fraud and wrongdoing."

NMC's external auditor Ernst & Young LLP never publicly raised concerns over NMC's financial statements. The U.K. accounting regulator has opened a probe into Ernst & Young's

audit of NMC's 2018 financial statements. (Adapted from Bloomberg, 12 May 2020)

In recent years, we have witnessed several accounting scandals, such as NMC Health Plc above despite auditors expressing an unmodified audit opinion (i.e. true and fair view).

Required

1)Discuss the benefits of performing an external audit on financial statements.

2)In the context of NMC Health Plc, the auditors EY failed to raise concern on the irregularities on the financial statements. Identify and explain the threats to independence faced by the auditors of BHS which might have impaired their objectivity, resulting in the audit failure. Appropriate and relevant examples and other case studies may be used to justify your arguments.