Naim & Amir audited the accounts of Murni Batik Sdn Bhd, a textile company. Upon completion of the audit, the auditors issued 15 copies of the audited financial statements. The firm is aware that Murni Batik wanted the number of copies of the auditor's report to furnish to banks and other potential lenders. The statement of financial position was misstated by approximately RM 800,000. Instead of having RM 600,000 net worth, the company was insolvent. The management of Murni Batik had altered certain financial disclosures in the books to avoid insolvency. The assets have been overstated by RM 500,000 of fictitious and non-existing accounts receivable and RM 300,000 of non-existing textiles as inventory. The audit failed to detect theses fraudulent entries. Encik Seong, relying on the audited financial statements, loaned Murni Batik RM 250,000. He seeks to recover his loss from Murni Batik and the auditors. Required: What would Encik Seong have to prove to be able to recover his loss from the auditors? Give reasons to support your answer.

Naim & Amir audited the accounts of Murni Batik Sdn Bhd, a textile company. Upon completion of the audit, the auditors issued 15 copies of the audited financial statements. The firm is aware that Murni Batik wanted the number of copies of the auditor's report to furnish to banks and other potential lenders. The statement of financial position was misstated by approximately RM 800,000. Instead of having RM 600,000 net worth, the company was insolvent. The management of Murni Batik had altered certain financial disclosures in the books to avoid insolvency. The assets have been overstated by RM 500,000 of fictitious and non-existing accounts receivable and RM 300,000 of non-existing textiles as inventory. The audit failed to detect theses fraudulent entries. Encik Seong, relying on the audited financial statements, loaned Murni Batik RM 250,000. He seeks to recover his loss from Murni Batik and the auditors. Required: What would Encik Seong have to prove to be able to recover his loss from the auditors? Give reasons to support your answer.

Corporate Financial Accounting

15th Edition

ISBN:9781337398169

Author:Carl Warren, Jeff Jones

Publisher:Carl Warren, Jeff Jones

Chapter10: Liabilities: Current, Installment Notes, And Contingencies

Section: Chapter Questions

Problem 10.5TIF

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