Ray, the owner of a small company, asked Holmes, CPA, to conduct an audit of the company's records. Ray told Holmes that the audit must be completed on time to submit the audited financial statements to a bank as a part of a loan application. Ray even offered to pay Holmes a fixed fee plus a 5% bonus if the audit is completed within three weeks as well as an added bonus of 10% if the loan was granted based on a favorable audit report from Holmes. While Holmes estimated that a standard audit of this size would take at least five weeks to complete, Holmes immediately accepted the engagement and agreed to provide an auditor's report within three weeks. Holmes hired two high school students who had taken a couple of accounting courses to conduct the audit and spent several hours telling them exactly what to do. Holmes told the students not to spend time reviewing the controls, but instead concentrating on proving the mathematical accuracy of the ledger accounts and to summarize the data in accounting records that support Ray's financial statements. The students followed Holmes' instructions and after two weeks gave Holmes the financial statements, which did not include footnotes because the company did not have any unusual transactions. Holmes performed a cursory review of the financial statements and prepared an unqualified auditor's report. The report, however, did not refer to GAAP or to the year-to-year application of such principles. Required: 1. Describe the five steps that Holmes should have performed when deciding to accept Ray as a client? (5 marks) 2. Briefly describe the five critical elements of the examination standards within the Generally Accepted Auditing Standards (GAAS). For each element, indicate whether the audit of Ray's company either met, or failed to meet, the standard along with your rationale for such conclusion