Ans 1. In our case study, King and Queen are the auditors and the plaintiff that is taking legal action against them is EFL. Negligence can be defined as any conduct that is ‘careless or unintentional in nature and entails a breach of any contractual duty or duty of care in tort owed to another person or persons’.(Godsell, 1993 P23) If EFL wants to claim for negligence than they will have to prove that the four elements exists (Gay & Simnett 2010, p. 153). 1) Duty was owed to the plaintiff by the defendant 2) Breach of duty of care 3) Plaintiff suffered loss or damage 4) Causal relationship existed between breach of duty and the lose or damage. In the case study of Pacific Acceptance Case, they established 10 principles and one of it was that whenever an auditor feels some suspicious activities, which may be because of some irregularities and which indicates towards some fraud, the auditor must take some action (Gay & Simnett 2010, p. 156). In our case study there was no action taken by the auditor even though they came to know that impulse was going through liquidity problems which was due reduction in inventory turnover and debtor turnover. If we have a look in the Thomas Gerrard & Son case, auditor should gather proper information when inventory are involved. Physical stock take should be done unless it in not rational to do it for the physical existence. (Gay & Simnett 2010, p. 155). In our case study auditor breached his duties by producing unqualified report without doing a physical stock take. So if we take under consideration these two case studies it can be said that there is an existence of element number 2, that proves that the auditors kings and queen did breach the duty of care. In ... ... middle of paper ... ...le if the privity letter was provided but in there was no privity letter provided. The auditor also does not perform any special audits based on written request. If we have a loon in Esanda case the King & Queen auditors did not prepare the report to convey anything to EFL therefore they cannot be liable (Gay & Simnett 2010, p. 169). If the privity letter was given by King & Queen auditors then they would be liable for the losses and also if EFL hires King & Queen as their advisor/consultant for which they will be getting paid only then the auditors would be responsible or liable. So in our case according to me the auditors King & Queen will not be liable to EFL unless the privity letter was provided and if the EFL gives loan to impulse on the bases of 2012 audit financial report and writes a letter to assist them in making decision in given them a loan .
Arens, Alvin A., Elder, Randall J., and Beasley, Mark S. (2012). Auditing and Assurance Services:
Due to this, the confirmation process has become of high risk. Third party intermediaries have been established to assist in this process by securely transmitting information to the bank and validating the authenticity of the respondent. The use of third-party intermediaries makes it more difficult for anyone to alter confirmation requests. There are risks that come with the use of third party intermediaries because the intermediary’s control weaknesses or deficiencies fall on the auditors as well when relying on confirmations received through them. Auditors must assess that the intermediary’s system of internal control has been designed and is operating effectively to meet the PCAOB
The accounting system misallocated motors from the asset manufacturing equipment to inventory. There are issues of honesty, responsibility, and professional ethics.
It is obvious that the Auditors cannot check all the inventories in every store. However, The extent of the negligence was too extreme. Moreover, There are factors contributed to the fraud. Phar-Mor hired a member of the external audit team and gets information on which store is going to be audited, that affects the independency of the existing external auditors. Sarbanes-Oxley Act of 2002 states “It shall be unlawful for a registered public accounting firm to perform for an issuer any audit service required by this title, if a chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for the issuer, was employed by that registered independent public accounting firm and participated in any capacity in the audit of that issuer during the 1-year period preceding the date of the initiation of the audit.’’ (Sarbanes-Oxley Act of 2002,section 206). In addition, SEC prohibits the role of such individuals in financial
Auditors must perform an occurrence test to determine if this fraud was committed. They could do this by checking bills of lading, sales invoices, channel stuffing and even communicating with some of the purchasers of Lakeside’s products. To receive the bonus, the ending inventory could have been over counted so as to reduce the amount of inventory charged to cost of goods sold; thus, increasing profits. The auditor must perform an existence test to determine whether this inventory is actually on hand. Liabilities could have been understated so as to decrease expenses and increase profits; consequently, also increasing the bonus. The auditor must test for completeness. This means the auditor should check whether the expenses they incurred are actually accounted for. They could do this by checking whether expense recognition was wrongly deferred and/or if expenses have been capitalized when they shouldn’t have. To test for this overall fraud risk in more depth, the auditor may be necessitated to include more experienced staff to sit on the audit team to collect additional evidence. This will potentially take longer; thus, costing Lakeside more
The Deloitte & Touche auditors should have first and foremost determined a materiality level for North Face’s complete financial statement. The auditors would have planned the materiality to the maximum amount in which they believed the financial statement could be misstated and would not affect their decision. The auditors would have reviewed and determined the extent and nature of the risk assessment procedures, and in addition, they would have identified and assessed North Face’s risk of material misstatement. Furthermore, the auditors would have determined the nature, timing, and extent of all further North Face auditing procedures. Lastly, the auditors should have reviewed all financial statements to ensure they were presented fairly and truthfully in conformity with the generally accepted accounting principles. The Deloitte & Touche auditors should have set a benchmark to assist them in determining the materiality of the financial statements for North Face. They could have utilized the assets, liabilities, equity, income, and/or expenses of the income statement; they could have also used North Face’s financial position, financial performance, or cash flows
After all, directors are more familiar with company and its day to day transaction more than anyone else since that is their responsibility. Even though the directors have followed the procedures and received advice from qualified advisors from management and auditors that does not mean the directors do not have to assess the information received under s189 which was established in Sheahan v Verco & Hodge [2001] SASC 91. The directors stated that there were too many information which compromised of 450 pages. However, as Justin Middleton said the directors could minimise the information so they will only receive the vital information and that is intelligible to them. After all, it is important for directors to comprehend what sort of situation they are encountering and to certify that the financial statement is accurate. Otherwise, if the directors do not go through financial statement and relies solely on the auditors and management then being a director would have less requirements which can lead to an unqualified person becoming a director and causes the company to wind up. Not to mention, directors are meant to be more experienced and knowledgeable accumulated through their lifetime since that is what differentiate them from
The current auditor independence is probably under threat, when the relationship between former and current auditor existed. In addition, the former auditor might use this relationship to pass some hiding fraud. Professional judgment is to make a decision based on your knowledge, training, and experience, that provided by auditing, accounting, and ethical standards. In this case, without applying professional judgment, the misstatement techniques that used by CUC cannot be
His project manager, Oliver Freeman, changed the analysis. that Daniel submitted in order to get a clear opinion so that their firm may get an exclusive account. The. My decision was to report the incident so that the correct information would be supplied in the audit documents. The decision I chose may cost Baker Greenleaf to lose an important client and Oliver Freeman to lose his job, but it will uphold the integrity of the accounting profession and keep Daniel Potter safe from the liability of providing false information.
Since the early 1970s, the auditing profession has been under increased pressure and scrutiny by government and users of audit reports. The phrase ‘ Audit Expectations Gap’ was first coined when the AICPA put the Cohen Commission together in 1974 to investigate whether the ‘expectations gap’ existed. However, the history of the expectation gap goes right back to the start of company auditing in the nineteenth century (Humphrey and Turley 1992). Since then, events ranging from the collapse of Arthur Anderson to the ongoing savings and loan problems seemed to have made the gap become more and more apparent.
The Act allows negligence as the sole ground unlike common law which required the claimant to establish ‘fraud’ even if negligence existed. It is believed that the ‘d...
...vil court are also launched under section 50 of the ASIC Act for compensation of the loss caused by soft auditing done by KPMG.ASIC has already separately commenced actions against directors and officers of the West point Group as well as a trustee and several financial services licensees.
The audit risk is consists of three elements which are inherent risk, control risk and detection risk. The audit model is important to the audit process. The audit risk model provides the basic for the current emphasis on the risk-based audit approach and it assists the auditor in determining the scope of auditing procedures for a particular account balance or class of transactions. Based on the assessed risk, the auditor may determine whether the use of more tests of control or substantive procedures is appropriate to address the
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.
Threats to Auditor Independence: The Impact of Relationship and Economic Bonds. By: Ping Ye; Carson, Elizabeth; Simnett, Roger. Auditing, Feb2011, Vol. 30 Issue 1, p121-148, 28p, 1 Diagram, 6 Charts; DOI: 10.2308/aud.2011.30.1.121