You are an Audit Senior currently planning the 30 June 2017 audit of Pearl Technology Limited (Pearl), an Australian-owned company that is a manufacturer of computer hardware. You note the following situations relating to Pearl.

3. A team of internal auditors has been hired 10 months ago by Pearl to improve on its existing internal control, which has been relied on for the past 10 years. Based on your experience, the revamping process should only take about 8 months. It came to your attention that only a short while after the employment of the internal auditors, the CEO of Pearl experienced severe personal financial difficulty. You also find that the process of revamping the internal control has been dragging because the CEO kept on declining the internal auditors suggestions for improvement. The accountant of Pearl has been notorious for finding gaps in the legislations in order to make its clients financial statements look presentable as desired by the clients themselves. In the past few years, Pearl has always been required by the Australian Tax Office to provide additional supporting information after the lodgement of its tax returns.

Required: 1. For each of the above situations relating to Pearl Technology Limited, answer the following:

(a) Identify and discuss why the above situation represents a risk.

(b) By applying auditing knowledge, identify the main account or group of accounts affected by this risk in the audit plan.

(c) Identify how the audit plan will be affected by the risks and recommend specific procedures to address these risks. (12 Marks)