Sakura Bank (Sakura) is operating 50 branches in Hong Kong. XYZ Co.(XYZ) has been the external auditor of Sakura for 7 years. Sakura operates a staff mortgage loan scheme offering their staff with an interest rate at onemonth HIBOR plus 0.5%. The current market rate is HIBOR plus 1.5%. Before the approval of the audited financial statements at the Annual General Meeting, Alvin Ho, the Head of Credit Department of Sakura, talks to Jason Wong, the audit engagement manager for the audit of Sakura, that he would like to extend the staff mortgage loan scheme to all staff of XYZ. This is to recognize the good performance of the staff and good relationship with XYZ. Alvin and Peter are secondary school classmates and are good friends who often have gatherings. The IT system of Sakura is going to revamp in next year. Alvin requests XYZ for an assessment of the design and implementation of the IT general and application controls, and also an advisory service on the IT system designs and implementation with FinTech. An audit assistant who performed the audit this year is considering resignation from XYZ to accept a credit analyst position at Sakura. Peter has just aware of this situation.

Required: Assess and explain the ethical issues of the above case and state the possible safeguards to address the issues, if appropriate.