Question $1$ : THE UNHAPPY EMPLOYEET

Andy Wiltshire is the accounts payable manager of Homestead Property Ltd $($HPL$).$ II

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Andy started with HPL as an accounts clerk and worked his way up to his current

management position. He was promoted due to his dedication to the company and his

reliability $-$ he often works evenings and weekends, rarely calls in sick, and he never takes

vacations. II

Despite earning a good salary, Andy enjoys living large, and the majority of his earnings goes

to pay for his luxury car and designer clothes. He finds himself living pay cheque to pay

cheque and has no savings for retirement or emergency purposes. I

$$I

HPL had a long history of profitability and had established a bonus scheme to reward its

employees when profit targets were made. However, at the end of $20$X$1,$ employees were

shocked when HPL announced it had its worst year in the company's history. Its losses were

significant and the company instituted significant lay$-$offs in an attempt to turn this situation

around. The accounting department's staffing was reduced by $35\%,$ and the remaining staff

was asked to do more. Andy now found that not only is he managing an unhappy accounts

payable group, he is also now signing cheques, processing payables, and reconciling the

bank account. This meant Andy is required to work even more without any pay increase or

bonus in sight. I

II

For the first time in his career at HPL$,$ Andy is unhappy. While he is fearful of further lay$-$offs,

he also feels unappreciated and after all of his hard work, he is unhappy he is being asked to

do more. He is also very worried that if he himself was laid off, his prospects of getting a

similar job were bleak as he did not have an accounting qualification and his age may be a

liability.

II

Required

I

$($a$)$ Explain the external auditors' responsibilities in relation to the prevention and detection of

fraud and error. $(2$ marks$)$

II

$($b$)$ Discuss the incentives, opportunities, and rationalizations to commit fraud in this case. $(6$

marks$)$