Section B - Answer ALL questions. Total marks for this section are 40. Question B1 (20 marks) Bargain Buy Limited ("BB") wholesales a variety of sundry goods. In order to improve revenue, the new Sales Director changes the remuneration package for the sales team linking it more directly to the sales. At the same time, the Sales Director sets aggressive sales target to motivate the sales team to work hard. Beside receiving stable orders from chain-stores, salespersons also promote the products by visiting potential customers. In order to provide flexibility for salespersons in business negotiations, salespersons can offer discounts to new customers without the Sales Director's approval. The sales team always check the stock availability before accepting an order. If necessary, they can void a sales order in the accounting system directly. Monthly statement is sent to customers. However, since the responsible staff quitted BB in September 2021, the monthly statement delivery has stopped entirely. You were the audit manager responsible for the audit of BB's financial statements for the year ended 31 December 2020 . Your audit firm is currently performing preliminary engagement activities for the audit for the year ended 31 December 2021 . Through your discussion with the junior sales staff, you learn that the new Sales Director always emphasizes on the importance of increasing sales. The sales team always works overtime and everyone is stressful. When you are considering the audit team formation, you note that the father of one of the audit team members has recently been recruited as the Finance Director of BB. Required: (a) Discuss the ethical issues that your audit team faces if you accept the reappointment of the audit engagement. Suggest appropriate safeguards to respond to the ethical issues. ( 8 marks) (b) Is engagement letter necessary when your audit firm accepts the recurring audit engagement? Discuss how the engagement letter can protect the interests of both your audit firm and BB. (4 marks) (c) Evaluate BB's risk of material misstatements due to fraud by considering the fraud risk factors. ( 8 marks) [Total for Question B1: 20 marks]