INDIVIDUAL ASSIGNMENT 1

HI6026 Audit, Assurance and Compliance

SUBMITTED BY :
MANPREET SINGH

STUDENT ID: IR 2472

INTRODUCTION

This assignment is about Audit, Assurance and Compliance. Impulse Pty Ltd Company

was established in 2005. This company is manufacturer entertainment system. King and

Queen are the auditing company and they do auditing since the Impulse company is

formed. The impulse company is going in the loss and this company is on the edge of

liquidation. The company is going in loss and companies debtor has increased. King

and Queen are doing auditing of the company and did not consider the valuation of

assets. The company gained loan from Easy Finance Limited (EFL) to support

business. EFL gave the loan on the behalf of the audit report to Impulse Pty Ltd. The

company could not maintain the business and was going in the loss and eventually the

company was liquidated in December 2012. EFL company solicitor sends notice to the

King and Queen company about the false auditing report and going to sue the company

for misleading auditing report and negligence of their work. EFL gave the loan on the

behalf of the audit report. This assignment is going to discuss in details that whether of

King and Queen company would liable with the support of references and contemporary

evidence. This essay would discuss that is that financial report makes them make the
decision to give the loan to the company. Negligence, the duty of care and proximity

would be addressed in this essay.

King and queen would be liable to EFL if they are failed to carry out their functions and

reasonable care due to its negligence to immediate clients and persons. They must

have auditing skills to perform their duties. Negligence means failure to perform their

duties or careless. The most recent example of auditor negligence is " Lehman

Brothers(USA)" in this case Lehman had sufficient proof of its auditor negligent to

claims against the firm for "professional malpractice" ( Jason Cheung).The auditor is

very much responsible to record the financial report and results. The auditor should

conduct their audit according to auditing standards. According to Australian auditing

standards ASA315, its auditor duty to understands entity (organisation), its working

environment and also learn how much risk involve in its activities and they should have

the skill to make the correct financial report. The primary objective of any audit firm to

reduce the risk of misstatement due to any reason like fraud or error so Its Duty of the

auditor to perform risk assessment procedures to make sure its financial report and

assertion level are correct. In Risk assessment procedures, the auditor should give

appropriate work to appropriate individual within internal audit and enquiries of

management. All the information generate by auditors and questions by the

management both are necessary for the financial report. During enquiries others,

employees have different levels of duties. Two-way communications are very useful for

any organisations so in audit firm all the enquiries should be active and auditor collect
information from them and use it to make the financial report. Each and every enquiry

have their importance like enquiries directed towards sales and market helps to know

the market trends. ( Auditing and Assurance Standards Board, 2015). According to

Australian standard ASA330, explain the responsibilities of the auditors generate and

implement the responses to reduce the risk of material misstatement and create the

correct financial report.The primary objective of this standard to produce accurate audit

evidence regarding risks so they can take suitable actions to correct those errors. In

which they check all the details of the transactions and account balances. The auditor

should review the auditor report after the particular time. The auditor shall recheck all

the financial report before the conclusion of the audit and make it correct and perform

the assessment of audit at assertion level. The auditor shall conclude if they have

appropriate evidence of the financial audit. If the auditor does not have sufficient proof

of the financial audit report, then they should need to obtain further proof of report in

case if auditor unable to generate appropriate evidence then auditor takes the qualified

opinion. To find overall material assessed risk in the financial report the further

information like time, nature, all the information should be clear and linked. Otherwise,

the audit report and conclusion will not be clear. The audit documentation will be very

helpful for the entity to take the future decisions. ( Auditing and Assurance Standards

Board, 2015) . As per in case Caparo Industries PLC v Dickman & Others (1990) the

auditor give the opinion on a company financial report and owe the duty to the

company's shareholders but the auditor is not responsible to other shareholder and

potential shareholders of the company. In addition to this, there is no duty of care the

auditor owed to the third party unless when the auditor is preparing the audit report and
the auditor knew that third party is going to rely on the audit report. If the auditor does

not know about that the third party is going to rely on the report, then the auditor is not

liable and does not owe any duty of care towards the third party. (auditing and

assurance standard board)

According to Caparo case study, the third party do not owe the duty of attention unless

they do advise from the auditing firm is that your report correct or not. So, the king and

queen do not liable to EFL because the third party does not owe the duty of care unless

the auditor does not know the specific needs of the third party.

(b) . Yes, my answer would be different if the third party advice to auditors regarding the

financial report. The auditor provides information with the duty of care if there are three

conditions satisfied If the auditor gives them in the writing or third, rely on the report.

Third party was going to use their report for the general purpose. If the third party

request to the auditor relates to the transactions prior and subsequent regarding the

general purpose financial report about which the auditor don't have any knowledge

performing the audit. Auditors should have full knowledge of third party needs. The

sometime auditor may not plan their financial audit report because they don't know the

third party may take any decision behalf of their audit report so it is important to know

the third party needs before performing any audit report.

Q.(2).

The auditor independence is very important to make the correct audit report. In which

independence defines the independence of internal auditors and external auditors.

Internal audit independence means auditor should be free from the different parties.
Their should not be any interest by the other party that be make effect on the audit

report. Financial reports which is prepared by the auditor gives the valuable information

of the company to equity, debt etc. This is the represent the management of the

company if anyone steal those information this will be great loss for the company so the

independence is very much important to protect the information from the clients

suppliers and third parties. We can say independence have two major aspects : real

independence and perceived independence. Both are very important to achieve the

company goals. Real independence relates to the state of the mind of the auditor and

integrity in which generally, concerns how auditors deal in the specific situations. And

also check the ability of the auditor how he takes his Independent decisions in complex

situations. Independence is helpful to judge the auditor skills, knowledge, and mental

level. additionally, in real independence the auditor free to make their choices. Auditor

can work according to their choices so he can take appropriate decision moreover the

auditor can prepare correct financial report for the company.

On the other side, In perceived independence, auditor do not free to do anything we

can say, lack of independence exists so its very hard to judge the mental level, integrity

and attitude. In perceived independence its just appears auditor is independent but in

real its not. In the presence of more than one people the audit report should not be

correct. Report would not give the fair view. ( Wikipedia)

(b).

1) Bob should have use the information of the club casino before using information he

should take permission from the club casino company if the club casino give permission

to bob then he is able to use the information in the assignment. he can not revel the
personal information of company. Acc to specific standard 110, the director is

responsible for all internal information of the company. He have power to take

appropriate action on the audit report. All the members of the organizations should be

honest they can revel the any internal information for his personal use or any other use.

(APES, 2010) If the club casino director know about the breach of privacy contract then

he can sue the bob for using his information.

2). wendy is working for ace limited audit for very long time she is totally dependent on

the ace limited and ace limited requested to wendy to perform their secretary duties but

she is engagement partner of ace limited audit. Acc to specific standard 120, objectivity:

auditors should not be responsible for the internal work of the firm but sometime they

need to do the non-audit work for the organization. Same in the wendy case, if Ace

requested to wendy so this is duty of wendy to do this job but wendy do not make any

contract with the Ace. She is not formally capable to do this job if she do anything

wrong by mistake and she would not be responsible for that. In alternative action ace

also can perform this action I think ace can do this job better than the wendy. (Audit

Independence, 2011)

3). Leo is eldest son of the factory foreman major audit clients. Leo can control the

internal audit. Acc to standard 130, Professional competence and due care; this is the

duty of all members to keep the professional knowledge and skills to make sure gives

the good services their clients. All the senior members of the company need to maintain

the capabilities to provide all types of services accurately. Members takes accurate

steps or provide supervision and training to all the workers. The alternative solution is

company should assign the outside auditor to do work.

4). Acc to specific standard 140, confidentiality; Classic reproductions failed to pay chan

and associates auditing fees and classic reproductions give offer to audit company new

office furniture which is not even worth 50%of the fees and 25% shares of any randomly

firms but the chan and associates do not have right do this. They do not react like the

owners of the audit firm. The alternative option is either the classic reproductions

surrender in front of the audit company or choose any lawful or legal way resolve it.

Bibliography
Auditing and Assurance Standards Board. (2015). Auditing Standard ASA 315. Retrieved from
www.auasb.gov.au:
http://www.auasb.gov.au/admin/file/content102/c3/ASA_315_Compiled_2015.pdf

Auditing and Assurance Standards Board. (2015, december). Auditing Standard ASA 330.
Retrieved from www.auasb.gov.au:
http://www.auasb.gov.au/admin/file/content102/c3/ASA_330_Compiled_2015.pdf

jason cheung. (n.d.). audit negligence. Retrieved from www.kordamentha.com:

http://www.kordamentha.com/docs/for-publications/issue2011-04-auditnegligence.pdf?
Status=Master

Wikipedia. (n.d.). Auditor independence. Retrieved from en.wikipedia.org:

https://en.wikipedia.org/wiki/Auditor_independence

APES. (2010, december). APES 110 Code of Ethics for Professional. Retrieved from
www.apesb.org.au: http://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf
APES. (2010, december). APES 110 Code of Ethics for Professional. Retrieved from
www.apesb.org.au: http://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf

Audit Independence. (2011). Retrieved from www.compliancealliance.com:

https://www.compliancealliance.com/our-services/audit-independence

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords. (n.d.). Retrieved from
en.wikipedia.org:
https://en.wikipedia.org/wiki/Esanda_Finance_Corporation_Ltd_v_Peat_Marwick_Hungerfords