You are the audit senior with SBM Chartered Accountants (SBM) and have been notified by your audit manager that you will be on the audit of SHARP Limited (SHARP) for the financial year ended 31 December 2021. SHARP, a non-listed Irish based company, is a supplier of office equipment to commercial clients across Ireland, with retail units situated in Dublin, Cork and Limerick. Due to the recent pandemic COVID 19, SHARP have experienced a downturn in sales. In response to this, SHARP have offered a 20% discount to all customers in order to generate sales and reduce their current inventory levels. You are delighted to be appointed audit senior on this audit engagement as you are familiar with the company due to the fact the company leases their Dublin based warehouses from your parents property investment company. Willie Murphy, audit partner on this engagement, has been heavily involved in the Consumer Technology Business audit department of SBM for many years, having a vast wealth of experience and expertise in this sector. SHARP is normally a straightforward audit, as Willie has been audit partner since their establishment in 2009 and knows the business very well, having a fantastic working relationship with SHARP. For example, Willie has agreed to advise SHARP on how to fund its financing requirements arising from some financing issues due to COVID 19. As part of the planning of this audit engagement, you have arranged a zoom call with the audit team. The following items were discussed: Materiality: The audit partner confirmed that materiality should be set as 1% of revenue and requested you to review the audit documentation on the prior year files to understand the rationale for such materiality determination. Audit Risks: The audit manager presented a PowerPoint presentation detailing the various risks from the prior year audit engagement, describing the various prior year significant risks, detailing the nature of the prior year audit procedures, timing of such audit procedures, and the extent of such audit procedures. Audit Procedures: o Based on the above PowerPoint presentation, the audit manager outlined that the same control testing and substantive testing approaches would be adopted as per prior year audits. o As audit senior, you read a briefing document from SHARP in relation to an on-going material legal issue with one of their customers. You take this opportunity to raise it with the wider team, asking for advice in relation to approaching the audit for this issue, including potential legal costs, estimates, and required disclosures in the financial statements. Willie advised that the legal issue was an on-going issue, but he would have further information later this month as he was invited to assist SHARP in the legal dispute at court due to his in-depth knowledge of SHARP and their related systems. Team Preparations: The audit partner took the opportunity to discuss the new work from home initiative published by the Irish Government in January. SBM have decided to close their office for the foreseeable future, encouraging all team members to work from home, communicating via Zoom or Microsoft Teams. Willie added that all audit team members could avail of a 20% discount offer from SHARP to purchase office equipment and supplies from SHARP to set up their home office. Your audit manager explains it is the same 20% discount offered to all customers, as outlined above. Fees: The audit partner noted that there would not be an increase in the audit fees this year due to the recent pandemic and the struggle for Irish businesses. The audit manager noted the audit fees for the last two years remained unpaid. The Ethics Partner at SBM is concerned with a number of ethical and independence issues on the SHARP audit engagement, referencing the International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants. The Ethics partner has raised this with Willie as a major concern. REQUIREMENT: Arising from the concerns raised by the Ethics Partner, you are required to draft a report to the Audit Partner of SHARP detailing the following aspects, with reference to the appropriate authoritative standard(s): (i) Identify and analyse the five fundamental principles, that professional accountants are required to comply with, as discussed in the IESBAs Code of Ethics for Professional Accountants, providing an example of each principle. (25 marks) (ii) From the information provided above, describe six potential ethical issues raised in relation to SHARP. State the measures that should be implemented by your firm in order to mitigate any threats which might arise.