You have been asked by your audit client, Bolts Ltd (Bolts), to prepare a report thatanalyses the potential acquisition of Steel Pty Ltd (Steel). Prior to conducting youranalysis, you decide to verify the accuracy and completeness of the cash flow statementprovided by Steel for the year ended 30 June 2012. After reviewing a draft of youranalysis, the chief financial officer (CFO) of Bolts has asked you to focus your attentionon the sales and profitability of Steel and to avoid the distraction of cash flow reporting.He suggests that the acquisition will provide substantial future financial benefits to Boltsand that confusing the board with cash flow issues would not be helpful to the acquisitionor to the likelihood of your being asked to undertake similar engagements in the future.RequiredList two threats to compliance with the fundamental principles that may exist resultingfrom your discussion with the CFO, and identify the fundamental principles at risk ofbeing breached.Scenario Two: (1000 Words)Luke and Zane are two audit seniors working for the same Big Four accounting firm.Both started employment with the firm around the same time. They have mutual respectfor each other; however, they have been highly competitive since they commenced worktogether.Luke has recently married and he and his wife are paying off their mortgage. Zane issingle with a reputation in the firm for playing hard but working hard too. They have bothbeen seniors for almost 18 months and are looking for promotion to audit supervisor.They are both aware that there is only one supervisor position available.Luke recently replaced Zane on a particular job, and the reason given to both Luke andZane was that another assignment had arisen with a long-time client of Zane's. Once Lukehad replaced Zane on that particular job, he realised that the client had called the auditmanager to say that they were not impressed with Zane, as he had missed a number ofissues within the audit and was arriving at work late. The audit manager had not discussedthese comments with either Luke or Zane. After going through the work that Zane hadcompleted, Luke realised that Zane had performed an excellent job, identifying a numberof issues that he thought he might possibly have missed. Furthermore, Luke suspects thatZane and the client had a personality conflict, and that the client has misled the auditmanager.Luke realises that he can finish off the audit, resolve the issues and obtain a good reviewfrom this assignment, which would help him in the promotion stakes. He also knows thatthe audit manager is unlikely to bring the client's unsupported allegations to Zane'sattention.Required(a) Work through this scenario using the American Accounting Association decisionmakingmodel, and decide what action Luke should take.(b) Would your decision be any different if you used the Mary Guy decision-makingmodel?Scenario Three: (1000 Words)The Peak Sawmill Limited (Peak) operates a timber sawmill in a large regional town. Itsources its raw material (pine logs) from a number of local growers and from its ownplantations. Logs are transported on large trucks that are weighed in on the company'sweighbridge and weighed out after dropping their loads in the storage area. Logs are thendebarked and sawn to size in the cutting area of the mill. The various logs are then sent toother areas of the sawmill depending on what they will be used for.You are a senior on the audit. In the planning stage of the audit, you perform analyticalprocedures. In the current audit period, the average number of days to pay creditors hasdeclined significantly from the average recorded over the past three financial years.Your investigation reveals that log suppliers represent more than 90 per cent of the value ofaccounts payable. As an internal control, details of the goods received notes are matchedagainst the supplier's invoice. The accuracy of the invoice is checked, after which theinvoice is authorised for payment by the mill accountant. Any discrepancy between what thesupplier's invoice amount should be and the actual amount charged by the supplier iscommunicated to the supplier by way of a pre-numbered 'request for credit' form. This formprovides reasons for the differences and the amount requested to be credited to the companyby the supplier.The correct amount of the invoice is entered into the accounts payable accounting systemand the supplier's monthly statement is reconciled to the accounts payable balance per thecreditors' ledger at month end. The differences are mostly attributable to:unprocessed invoices due to pricing differences timing differences in the recorded date of a payment madeamounts requested for creditsettlement discounts disallowed.Cathy Vernon, the company's financial controller, informs you that due to the increase in theprice of timber, new contracts with suppliers have been negotiated over the past year. Theaccounts payable personnel have complained that management is too slow in informingthem about the effective dates of the implementation of the contracts and the revised prices.A brief inspection of the accounts payable reconciliations for five of the biggest suppliersindicates that many invoices are being held back due to the lack of correct pricing.Required(a) List two key assertions at risk in relation to accounts payable.(b) Provide your justification for each assertion.(c) For each assertion, outline one substantive test of detail to obtain sufficientappropriate audit evidence.