You are the manager responsible for the engagement to review the financial information of

Riff Ltd (Riff) on behalf of an external audit client, Alto plc (Alto), a listed company. Alto

requested the review as it intends to acquire the share capital of Riff. The audit junior

currently working with you on the review engagement told you that, yesterday, he purchased

shares in Alto because he believes its share price will rise when the acquisition of Riff is

announced. He also told you that he has informed his parents about the acquisition and has

advised them to purchase shares in Alto.

Explain the ethical issues arising in this situation and state the actions you and your firm

should take.