Sarah Ann from Earnest & Young, is the auditor for Axis Tech Sdn Bhd (Axitec). She and her team are at the completion phase of the audit work. While reviewing all audit files, Sarah Ann made sure that all procedures, standards and guidelines are met, and sufficient evidence were gathered to satisfy the audit. Later, Sarah Ann wrote a letter to the Audit Committee of Axitec to inform them of a material weakness in their current inventory control system. Concurrently, Sarah Ann sent a separate letter to the senior management about the weaknesses which could cause significant misstatement in inventory due to the failure to recognize obsolete computer components. The letter also includes specific recommendations on how to improve the internal control and save clerical time by installing a computer system for recording purposes. The management accepted her suggestion. The system worked well for a few months, but problems surface when suddenly a master file became corrupt. The management decided to scrap the system. Apparently, Sarah Ann was sued by the company for failing to provide adequate professional judgment in making the recommendations. Axitec somehow fell into financial difficulty and was nearing bankrupt. While, Bank ABB approved a RM1.5 million loan to Axitec, upon relying on the audited financial statements signed by the auditor. Now, Bank ABB seeks to recover the loss from Earnest & Young. (a) Discuss the possible defense that should Earnest & Young use in the suit of Bank ABB. (6 marks) (b) Discuss what are the possible defense Earnest & Young could use against Axitec. Is Sarah, as representing Earnest & Young, liable or not in this case? (8 marks) (c) Discuss Sarah's legal and professional responsibility in the issuance of management letters. (6 marks)