Case Study Of Auditing At Ultramares King And Queen

The auditor¡¦s responsibility is to the client and not the third parties the client plans to distribute the financial statements to. The auditor does however consider the third parties when completing the audit. There is no direct responsibility to the third parties.

This case established that an auditor could be sued by a primary beneficiary for damages from negligence. A primary beneficiary is a party that has a direct benefit from the audit. Non-privity parties could also sue for gross negligence. This increased the auditor’s legal exposure to third parties. The SEC of 1934 reflected these changes and many others; one significant change was that auditor’s had a much higher litigation risk due to their new responsibility to third parties.

The fourth section of this paper summarizes accountant liability imposed by statutory law. The most significant source of potential liability for accountants, especially those who perform work for public companies, is the liability imposed by federal statutes. Federal legislation of accountants began after the 1929 New York Stock Exchange crash, with the enactment of the Securities Act of 1933 and the Securities Act of 1934. This historic crash led to the Great Depression and an era of economic destabilization

As a result of the case of Bily vs. Arthur Young in 1992, the Supreme Court issued a hierarchy of duty for accountants who prepare incorrect financial statements. In order to be found liable under ordinary negligence, an auditor must owe a duty to his or her client only. The duty expands to receivers of the financial statements under negligent misrepresentation. The Supreme Court defined the receivers as

An auditor's legal liability under common-law requires the auditor to perform professional services with due care. An auditor would cite adherence to generally accepted auditing standards as evidence of having exercised due care in conducting the audit. Lawsuits for damages under common law usually result when someone suffers a financial loss after relying on financial statements later found to be materially misstated. Plaintiffs in legal actions involving auditors such as clients or third party users of financial statements generally assert all possible causes of action, including breach of contract, tort, deceit, fraud, and anything else that may be relevant to the claim.

Looking at the facts given within the case of Easy Finance Limited (EFL) against King& Queen there is a possibility that King& Queen could be liable. An Auditor is expected to exercise the “reasonable care and skill” that is expected of a professional which comes from the legal president established from the judgment by Moffit J in Pacific Acceptance Corporation v Forsyth and Others (1970) 90 (NSW) 29. An auditor can be liable if they are proven to be negligent or have committed fraud (Gay& Smitten, 2010, p.152).

Though the situation of fraud appears to be black and white, what is there to be said about the auditors who do not detect the fraud committed by their clients? Where they incompetent in their audit of the financial statements, or were they somehow involved in the fraudulent activities? A case that demonstrates the consequences to auditors when fraud is found to have been perpetrated by a client is that of Ernst & Young and the lumber company, Sino-Forest.

An audit is based when management prepares the financial statements, maintain internal control over financial reporting, and provide relevant information and access to the auditor.

Based on the previous answer, I believed that Touche Ross did not comply with the applicable professional standards which are International Standard of Auditing (ISA) 560. When the personnel of Touche Ross discovered that the AFS’s 1985 financial statements contained a material misstatement, they attempted to persuade AFS to recall the company’s 1985 financial statements. But, unfortunately AFS officials declined to recall those financial statements. At last, AFS and Touch Ross come

A company’s external editor is mandated with assessing a public company’s ability to accurately institute internal financial reporting structure and systems as well as evaluating the company to ensure that that there are no loopholes that mischievous individuals can use to fraud the company (Lowenstein, 2004). Shareholders and the public place their trust on the external auditor in revealing mischievous activities that take place in a company. In Adelphia Communication Corporation context, the shareholders and the public trusted Deloitte. They believed that Deloitte could and would evaluate Adelphia’s operations, identify and report suspicious activities perpetrated by the company. According to investigations, a number of warning signs could have notified Deloitte of the fraudulent activity at Adelphia. Therefore, Deloitte was either incompetent in performing its duty or it out-rightly falsified its report. Considering its reputation and ensuing investigation, the latter is true. Based on AICPA professional conduct code, Deloitte failed in its duty because it did not conduct itself in the public’s interest. Instead, it gave false audit reports of the company in favor of Rigas family.

The liability of auditors to third parties has been the subject of much litigation. Litigation claims against accountancy firms have increased dramatically in the last thirty years. Previously, such cases were rare and were viewed with great interest. Nowadays, whereas still treated with great interest they are becoming all kind of common. The specific area of auditors ' liability to third parties is an extremely complex area. As there is no contractual claim for recovery of losses, third parties take action in tort. Some time ago it was believed that recovery of losses

Internal auditing is an independent objective assurance and consulting acitivity designed to add value and improve an organizations operations.

Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become

The process of examining and then Verifying business financial statements. Auditing can be performed by an independent auditor that is not employed or affiliated with the company or a public auditor that has been elected.

The lack of independence for external auditors will lead to the neglect of auditing risks (William R.K., 2003), which are the main reasons for the failure of certified accountants and professional accounting organizations. The consequence of the external auditors deprived of independence would be very serious. And there are many cases, which aroused by the failure of external auditors and most are related to the lack of independence. One famous example is the bankruptcy of Enron and the role played by its external auditor, Arthur Andersen (Todd, S., 2003). Arthur Andersen was once one of the biggest accounting companies in the world, and was canceled for the involvement in the Enron bankruptcy scandal.