A bank that lent considerable funds to a “high-flying” and, until its recent bankruptcy, highly successful real estate development company has hired your firm to investigate the company’s long-time auditors, a-medium-sized PA firm. The bank has claimed that the financial statements did not fairly represent the company’s financial position. The senior partner in your firm in charge of the investigation has been provided with full access to the complete working papers of the initial auditor in order to complete the investigation. If the matter ultimately goes to court, the case will likely be very high in profile and will likely receive significant media coverage.
The senior partner in your firm has assigned you, a manager with considerable auditing experience, to assist him in evaluating the auditors’ quality of work and actions.
a. Outline what you would do to help your senior partner prepare for the investigation. You should give details of those items he should consider in his preparation as well as the guidelines that would be used to develop an opinion as to the appropriateness of the auditors’ actions.
b. On what basis (bases) will the court decide the auditors’ liability in this situation?