You are a lead auditor from ABC Auditors Pty Ltd. Your client is Cassey's Quality Cars Ltd who are a large car dealership with branches across Queensland. ABC Auditors have performed audits for past 4 financial years. The 2022 financial year is the current year being audited and this is your first year as lead auditor.

During the course of the audit you find a car sale to James McDonald who was the lead auditor for ABC Auditors Pty Ltd on the 2021 financial audit for Cassey's Quality Cars Ltd. A copy of the invoice is attached.

When you question the Finance Manager of the dealership about the reason for the discount he tells you that there is a substantial sales discount given to regular customers on the purchase of additional vehicles. He provides you with an extract from the organisational policy and procedures dealing with this. As the audit firm has been auditing the dealership for past four years, the Finance Manager offered the same discount to Mr McDonald even though he had not previously purchased a vehicle from them. Mr McDonald was happy to accept the discount and the Finance Manager approved it.

Required:

1. What are the legislative, regulatory and industry requirements that apply to this situation?

Research the auditor's responsibilities on the ASIC website and look at the APES110 Code of Ethics for Professional Accountants. Make reference to the relevant sections of the Corporations Act and industry codes in your answer

2. Explain whether the above requirements been met.

3. Provide details of any breaches of the relevant organisational policies and procedures that may have occurred in this situation.

4. What ethical issues do you have as the auditor?

5. What steps would you take in dealing with this ethical situation? In your answer also be specific about what action you believe should be taken in this case.

6. What recommendations would you make to avoid a similar situation occurring in the future? Your response should make reference to the organisational chart and the internal controls.

7. Identify at least 3 stakeholders in this situation and the potential affects the situation could have on each one.