Police raided the accounting office of BDO, an audit firm, in Australia to gather evidence about the audit work done in relation to ABC Holdings Ltd, an electronic maker. ABC filed for bankruptcy in 2009 with $1.8 billion of debt on its books, the largest bankruptcy filing at that time. The raid had been made due to a request from the bankruptcy trustee, Kathy Taylor. Taylor stated that the accounting firm had been negligent in the performance of the audit and the negligence had led to substantial losses for ABC. Taylor alleged that information in the work papers had been forged during the audit process. Edward Wells, the manager of the audit engagement was fired by BDO after being suspected of forgery in preparing audit work papers. BDO settled Taylor’s claim against the audit firm for a substantial amount of money.

Required:

1. Discuss the accounting and ethical problem if an auditor prepares forges to audit documents. Which fundamental principles were violated by the forgery? Explain
2. Was the bankruptcy trustee right to file a suit against the accounting firm for negligence in the audit? Was the audit firm justified in firing Edward Wells? Explain.

Answer rating: 100% (QA)

Q1 Forgery is a falsification of any documents in this case an accounting document This may be done through intentionally changing the face of the doc... View the full answer