You are an audit manager, auditing the financial statements of Newthorpe Engineering Co, a listed company, for the year ended 30 April 207. Newthorpe's management has provided you with a schedule of the realisable values of the inventories. A full inventory count was carried out at 30 April 207. Audit tests have confirmed that the inventory counts are accurate and there are no purchases or sales cut-off errors. One of the company's factories was closed on 30 April 20X7. The plant and equipment and inventories were to be sold. By the time the audit work commenced in June 207, most of the inventory had been sold. You have instructed the audit junior to evaluate the valuation of the inventory related to the closing factory at the year end. The audit junior has sent you a list of planned audit procedures. On 17 March 20X7, Newthorpe's managing director was dismissed for gross misconduct. It was decided that the managing director's salary should stop from that date, and that no redundancy or compensation payments should be made. The managing director has claimed unfair dismissal and is taking legal action against the company to obtain compensa ho for loss of his employment. The managing director says he has a service contract with the company which would entitle him to two years' salary at the date of dismissal. The directors believe that there is a 35% chance of the managing director succeeding in his claim. The financial statements for the year ended 30 April 207 record the resignation of the director. However, they do not mention his dismissal and no provision for any damages has been included in the financial statements. Which of the following responsibilities is CORRECT regarding the responsibilities of Newthorpe's auditors in relation to compliance with employment regulations? To obtain sufficient appropriate evidence regarding compliance, as they have a direct effect on the financial statements To perform specific audit procedures to identify possible non-compliance The auditors do not have any responsibility, as the employment regulations do not have a direct effect on the financial statements To prevent and detect all non-compliance with the regulations