The Barings Bank was one of the world's oldest merchant bank and had problems with rogue trading in the middle of the 1990s. Nick Leeson was floor manager for trades in Singapore as well as head of settlement operations, thus he was able to settle his own trades, bypassing the banks own internal controls. Whilst trading, Nick Leeson supposedly made $10 million profit in the first week of February 1995 for the bank. This humongous profit caught the attention of other staff members in the bank. For instance, Mike Killian, who was the head of Global Futures and Options Sales, knew that the whole of Barings bank was making about GBP 200 million a year. If Nick Leeson carried on making such a profit throughout the year it would be half a billion dollars a year profit! Accordingly, to some sources, Mike said that if Nick is doing that amount of business for that amount of profit, then they should shut down the rest of the bank because they were just overheads.4 Due to Nick's rogue trading, the bank went bankrupt in 1995.5

a) Mike Killian was cynical that one person alone was making more money than all the rest of Barings Bank staff. Questioning the reliability of information and being alert to conditions that may indicate possible fraud is an attitude expected from auditors. What is the name of this professional attitude and what is its use of it in the role of auditors?

b) Nick Leeson was floor manager for trades as well as head of settlement operations. This means that he was able to settle his own trades, bypassing the banks own internal controls. Considering the Code of Ethics for Professional Accountants, which kind of threat to independence does this relate to? Describe this threat and suggest one safeguard Barings bank could have implemented to eliminate or reduce this threat.

c) Before going bankrupt in 1995 Barings bank had an unqualified audit report. What does that mean regarding audit expectation-performance gap? How does an unqualified audit report relate to the bank going bankrupt?