Audit failure can be defined as a case where the appointed auditor attested that the financial statements were fairly stated as true and fair, when in fact they were significantly materially mis-stated. An audit failure occurs in cases where:

1. There is a business failure
2. There is no supervision of the audit by shareholders
3. The auditor failed to use due care and skill in the conduct of the audit
4. The client company is insolvent
5. All of the above