Solution to the Problem:

Question 1. Money laundering is the illegal process of concealling the origin of the money obtained illegally by passing it thorugh the complex sequence of bank transfers. It is process of making the dirty money "clean". The process basically involves three steps:

1. Placement: Placing the illegal or "dirty" money into the legitimate system.

2. Layering: Layering concels the source of money thorugh the series of transactions and book keeping tricks

3. Integeration: In final step, the laundered money is withdrawan frok legitimate account to be used for whatever purpose the criminal have in mind.

The above scenario is the case of Money laundering.

In which Managind Director deposits the sum in three installment in company's bank account. And the same amount in three installments are transferred outside in three different companies in different countries. And accordingly he wanted to make the dirty money "clean".

The amount can go out of company's bank account either as payment to suppliers/vendors/bank, related party transactions. But the managing Director have asked not to record these transactions as it has nothing to do with the Didi business.

The auditor should take clarification from management for the above transactions and if required should provide it in other matter paragraph.

Question2.

(a) The ethical issue arising in this case is Objectivity. The auditor should be independent i.e., not bais in it's opinion. It is given that Jeff one of the audit team member has invested in Pension plan for all the listed companies on stock exchange. Which indicates that Jeff would want the Boboobo Ltd to show higher profit or present the better financial statement which would ultimately be beneficial for him in his Pension plan.

Threat the audit manager could see here is Self Interest. Auditor should not have any self interest other than the true and fair view of Financial statement.

The Audit manager should consider replacing Jeff for Boboobo Ltd audit.

(b) The Auditor should avoid any action that bring disrespect and discredits to the profession and should be honest and straight forward in all professional relationships.

The threat audit manager could see here is Functionality. Where the person second in command in audit team wants to date the daughter of CEO. Which means that "Jay" functionality may differ and would not be able to provide true and fair view ,of the financial statement.

(c) The threat arising here is "Familiarity". The threat to long and close relation with the client, auditor often gets too sypathetic and emotional of their interests or too accepting their work. Further it can also create the Self interest, intimidation threats. In evaluating the significance of threat the senority of the member involved in audit should be tested.

Safeguard- Policies and proceedure should be implemented that will enable the identification of interests and relationships between the firm or member of engagement teams and clients.

(d) The audit firm providing other than auditing service to client may create Self review threat becasue service provided may affect transactions recorded in financial statements. In addition Self Interest threat may arise due to income that might be offered for organization's work done and advocacy threat may arise due to the type of service provided.

Safeguard- Use different partner and engagement team with separate reporting lines for non assurance and other than audit work.