You are the auditor of a well regarded listed ASX coal mining client company and you...

 

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You are the auditor of a well regarded listed ASX coal mining client company and you have heard through a whistle-blower that the quality of the coal being sold to overseas organisations is below the quality of what has been contracted for. In particular the anonymous whistle blower's allegation is that the testing laboratory that does the analysis for your client has been falsifying the testing results for some time. You have raised this with the Chief Executive Officer (CEO) of your client and the CEO denies that there has ever been a problem with the quality of its coal. However, when you suggested that the Board of Directors should be advised of these allegations, the CEO refers this to the company's lawyers for advice. The CEO a week later states that the company's lawyers have hired a major accounting consulting firm's independent forensic accountant to review the allegations. Subsequently the client advises you that the client's lawyers have concluded that the allegations are not true. You as auditor have asked for a copy of the consultant's Report but have been told it is confidential as it is legal advice that the lawyers have advised is only available to the company. The potential liability for the company is material and you are signing off the financial statements shortly. The CEO has stated that as the allegations are not true there will be no disclosure of this allegation in the financial statements. You are required to answer the following questions: (a) What options do you have in making a decision on the CEOs advice, and explain your reasons (5 marks) (b) Assuming you are not satisfied with the client's advice, what action can you take (15) marks) You are the auditor of a well regarded listed ASX coal mining client company and you have heard through a whistle-blower that the quality of the coal being sold to overseas organisations is below the quality of what has been contracted for. In particular the anonymous whistle blower's allegation is that the testing laboratory that does the analysis for your client has been falsifying the testing results for some time. You have raised this with the Chief Executive Officer (CEO) of your client and the CEO denies that there has ever been a problem with the quality of its coal. However, when you suggested that the Board of Directors should be advised of these allegations, the CEO refers this to the company's lawyers for advice. The CEO a week later states that the company's lawyers have hired a major accounting consulting firm's independent forensic accountant to review the allegations. Subsequently the client advises you that the client's lawyers have concluded that the allegations are not true. You as auditor have asked for a copy of the consultant's Report but have been told it is confidential as it is legal advice that the lawyers have advised is only available to the company. The potential liability for the company is material and you are signing off the financial statements shortly. The CEO has stated that as the allegations are not true there will be no disclosure of this allegation in the financial statements. You are required to answer the following questions: (a) What options do you have in making a decision on the CEOs advice, and explain your reasons (5 marks) (b) Assuming you are not satisfied with the client's advice, what action can you take (15) marks)

Answer rating: 100% (QA)

answer a There are 2 options for the auditor based on the CEOs advice The first is to proceed with t... View the full answer