A public listed oil marketing company (OMC) figured out a way to defraud banks by monetizing unfunded letters of credit in a scheme that involved collusion with another OMC that also had its own refinery. The two companies will engage into a purchase and sale transaction without actually exchanging any oil and getting money from the bank against the letters of credits issued. The scheme was crafted as a make-shift arrangement to fight off the financial crunch while the global oil market recovers, which never did. When the company defaulted on paying back the banks, a question was raised about the auditors as well. FRSHABC Chartered Accountants were the auditors of the Company until they resigned before concluding the year-end’s statutory audit and issuing an audit opinion. However, their six-monthly review report contained a statement that the accountant is not aware of any material modifications that should be made to the financial statements. The NABP wants to prosecute the auditor for gross negligence in performance of their duties as statutory auditor whereas the auditor is contending that there has been no professional misconduct in this case. Explain in your own words about potential rationale for the auditors defense in the context of the situation

Answer rating: 100% (QA)

Based on the rationale and legal details described in the material the following major assumptions c... View the full answer