The Case of Easy Finance Limited against King & Queen

An “audit failure” is a situation in which a professional auditor fails to detect a material error in the financial statements of the company they are auditing. The audit failure in the situation of Rita Crundwell the failure was exacerbated by the fact that the auditors continually signed off on the misstated statements for years. Crundwell is responsible for many of the deficiencies mentioned, such as the missing funds and the incorrect invoices. However, she is not the sole person responsible for this fraud. The lack of internal control is to blame, and this cannot be placed on a single person. The government should have separated duties and used

The company’s increase in inventory (illustrated on the statement of cash flows) rose after 1970 and culminated by a drastic increase in 1973. This increase in inventory (especially in 1973) appears to be heavily financed by short-term and long-term borrowing rather than the typical accounts payable. This is a bit unusual and in 1973 (when they acquired the greatest amount of debt equity, their accounts payable decreased. Their sales were not sufficient to offset the large outflows of inventory related costs. Furthermore, Grant’s decentralization was also a cause of their financial woes because rather than corporately controlling credit extension and credit terms, they allowed each store manager to set their own policies (and manipulate them as they desired). This disastrous policy imploded in 1975 when the company had to make a $155.7 million provision for bad debt expense. So not only did the company have substantial debt and bad debt to equity ratios, they were forced to write off about 8.8% of their total sales from 1975.

Grant Thornton should be held liable for its reckless negligence because it ultimately prolonged Keystone bank’s ability to continue to partake in fraudulent activities. If the accounting firm would have held itself to GAAS, generally accepted as the minimum standard of professional conduct in performing an audit, Thornton would have known to exercise “heightened skepticism” during this high risk of fraud. Secondly, GAAS required written confirmations from third parties servicing assets in regards to a bank’s balance sheet. Not only did Thornton fail to obtain this written requirement, it also recklessly relied on an oral statement. GAAS also required in a high risk audit that monthly remittances of interest income on assets being serviced by

As we have mentioned in introduction, Harvey Norman (ASX. HVN) is a giant company, business cover Australia nationally, Asia in Singapore, Malaysia and Europe- Ireland. Core business specialized in retailing & franchising, in areas of electrical, computer, furniture, entertainment, bedding goods. In this part of assignment, we aimed to find out some non-quantitative factors that might leads to potential misstatement, which eventually overstated or understated specific accounts that shown in profit and loss or balance sheet.

In this case, Success Assets Pty Ltd (Success) borrowed money from Statewest Credit Society Ltd (Statewest) to purchase land, and the land was mortgaged as security. The plaintiff entered into a guarantee in favour of Statewest which secured the loan and all future loans from Statewest to Success. Success used money borrowed from Home Building Society Ltd (Home) to pay the loan from Statewest. Statewest’s rights under the guarantee (which includes those relating to future loans) and Home’s rights under the were transferred to the defendant, Bank of Queensland (BOQ).

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.

Lawsons’ liquidity ratios may be alarming to the bank. The company’s ability to repay short-term debt has significantly deteriorated over their four year span to the point where the company is almost unable to operate. This is defiantly a fragment of the company that the bank will have to take a deeper analysis on.

This essay explores the corporate collapse of Harris-Scarfe on April 3 2001, which before their collapse was Australia’s third largest retail group (Buchanan 2004, p. 55). It will explore the collapse in the context of the auditing framework. In particular, how the financial indiscretions were not discovered by the auditors, which were going on as early as six years prior to the collapse (Buchanan 2004, p. 62). To start with, we define what the auditing objective is in order to work out where it failed in this case. ASA 200.11/ISA 200.11 defines the auditing objective as one that needs to ascertain reasonable assurance that the financial report as a whole is free from misstatement, whether due to error or fraud. In doing so the auditor can give an opinion of whether the financial report was prepared in accordance with the financial reporting framework (Gay & Simnett 2012, p. 12).

B) I think the auditors should have equal responsibility for detecting material misstatements due to error and fraud. It’s their job to make sure the financial statements are as accurate as possible. Although it may be hard to check all the information from a company it’s the responsibility of the auditor to sign off that everything is in check.

Support: The Company’s revenues increased considerably (19%). However, the Accounts receivables also increased significantly (38%). Increase in revenues are generally associated with a proportional increase in the allowance for doubtful debts. By not reporting a significant ‘allowable for bad debt accounts’, the company is able to overstate its profits and could be a cause for concern in the long run, if the receivables turn out to be bad.

With the avalanche of accounting scandals that have rocked the public, people tend to have increasingly high expectation that auditors are accountable for detecting all frauds, while the standards require auditors to provide reasonable, but not absolute, assurance. The purpose of the report is to discuss the accountability of auditors in detecting fraud by analysing a $16.9 million fraud of Otago District Health Board (ODHB) perpetrated by Swann and Harford from 2000 to 2006. The report will explain the event, the fraud, the stakeholders, the role of auditors and the current situation.

If parties enter into a contract that is reflective or derives from a mistake, under common law the contract may be void or voidable. The basis of this decision depends on the type of mistake. Shogun Finance Ltd v Hudson presented a unilateral mistake, in which only one party is mistaken, and in this case, a mistake as to the identity. The difficulty lies when judges must decide whether a contract is void or voidable, which will only protect one of the two arguably innocent parties, the original property owner or the bona fide purchaser. However, the approaches previously taken by the Courts have led to a lack of certainty and coherence in the interests of commercial transactions, and so the Shogun case presented an opportunity for clarification. I am going to raise the argument that the law of mistake is in need of a reform, by following Lord Millett’s proposal to no longer follow the cases Cundy v Lindsay and Ingram v Little. The reasoning within this argument will establish that the cases are inconsistent, lack support for third parties and fail to establish the authority of creditworthiness over identity in commercial contracts. Alternatively, the cases Phillips v Brooks and Lewis v Averay should be used to create a clear established line of case law which can be seen as a fair and practical approach towards mistake and protecting the bona fide purchaser.

Furthermore, if an organisation does not have enough cash resources in order to settle its current liabilities, this will highlight great inefficiency with stock turnover not being sold. A good company such as Sainsbury’s we see is healthy because revenue is recognised from inventories sold – this revenue allows cash to flow in order to pay for short term and long-term liabilities. It is evident that there are insufficient cash flowing into the company from investing activities and financing activities, which are shown by the brackets.

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.

This article initiates with the introduction on what is audit planning. It basically addresses the audit plan strategy of K & S Corporation limited’s Financial Statements. Being an external auditor of the company, key factors to be considered in auditing the financials of the subject company have been discussed in the article. The most significant accounts at risk being materially misstated have been critically examined citing the possible risks associated with such accounts. Last but not the least, the article concludes with recommendations with respect to audit assessment plan of the company. Hence, this article seeks to act as a ready reckoner guide for an audit manager in audit planning of K & S Corporation Limited.