As the auditor involved in the audit of Special Occasions Supplies (SoS) Ltd, Lou Ganis is...

 

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As the auditor involved in the audit of Special Occasions Supplies (SoS) Ltd, Lou Ganis is happy with the smoothness of the audit for the year ended 31 March 2021. Two months after the completion of the audit, the audit partner telis Lou that SoS has just gone into liquidation. The financial controller was diverting company funds into a Canary Island bank account and has left the country to live in French Polynesia. The lawyers for the creditors of Sos are taking action against the audit firm for not performing an appropriate audit. They belleve that a properly conducted audit should have detected such a fraud. The fraud was substantial; however, it was not material from the company's point of view. Lou explains to the partner that the audit was performed in accordance with all auditing standards and nothing was found to arouse suspicion during the audit. The audit took the same amount of time as last year's, and all appropriate work steps were performed. Lou's work was reviewed by a manager and the entire file was reviewed by the audit partner. The audit partrner is still concerned. He rings an audit partner in an associated office of your accounting firm and asks her to review the audit file. She agrees and spends a day reviewing the file. After completing her review, she is satisfied that the audit was performed properly. REQUIRED Using previous court cases and relevant professional standards, discuss whether the accounting frm has acted with dus care. (8 marks) b. If this case goes to trial, explain what the likely court decision will be. Give reasona for your answer. (S marks) Even if the partner is convinced that he acted with due care, explain why he may offer sos a substantial settiement amount. (7 marks) As the auditor involved in the audit of Special Occasions Supplies (SoS) Ltd, Lou Ganis is happy with the smoothness of the audit for the year ended 31 March 2021. Two months after the completion of the audit, the audit partner telis Lou that SoS has just gone into liquidation. The financial controller was diverting company funds into a Canary Island bank account and has left the country to live in French Polynesia. The lawyers for the creditors of Sos are taking action against the audit firm for not performing an appropriate audit. They belleve that a properly conducted audit should have detected such a fraud. The fraud was substantial; however, it was not material from the company's point of view. Lou explains to the partner that the audit was performed in accordance with all auditing standards and nothing was found to arouse suspicion during the audit. The audit took the same amount of time as last year's, and all appropriate work steps were performed. Lou's work was reviewed by a manager and the entire file was reviewed by the audit partner. The audit partrner is still concerned. He rings an audit partner in an associated office of your accounting firm and asks her to review the audit file. She agrees and spends a day reviewing the file. After completing her review, she is satisfied that the audit was performed properly. REQUIRED Using previous court cases and relevant professional standards, discuss whether the accounting frm has acted with dus care. (8 marks) b. If this case goes to trial, explain what the likely court decision will be. Give reasona for your answer. (S marks) Even if the partner is convinced that he acted with due care, explain why he may offer sos a substantial settiement amount. (7 marks)

Answer rating: 100% (QA)

a As per SA 200 Overall Objectives of the Independent Auditor and the Conduct of ... View the full answer