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I think it was regarding the ALARP concept considering the impact of risk and probability of risk being realised.
Means all some one can reduce the risk but in reality it is not possible to eliminate complete and company will have residual risk which organisation will accept.
Management can reduce the impact of the risk by taking risk management by TARA but can not control the probabilities of risk as it is dependent on external factors and out side the control of entity’s control like adverse weather because of rail accident realized.
I think Q2 required to consider how FAK being Accountancy firm of accountants can play role in public interest. what verious threats to indepence was existed at FAK. How this threats affected the ethical behaviour at FAK. What safeguard should be in place to independence to have ethical behaviour.
There were clues in question like working as auditor from 20 years , overdue fees, finance agreed to give clear report where major debtor gone into liquidation etc