Reference no: EM132306256

Auditors and Legal Liability

Purpose of the assessment

Students are required to research a recent legal case where an Audit firm was sued for professional negligence. Students are required to analyse the root causes and the pertinent issues from their selected case and then specify what measures can be taken by auditors in the audit approach and in other ways, to minimise the risk of litigation and ensure professional integrity and reputation.

Learning Outcomes:
• Demonstrate an understanding of the reporting requirements of auditing standards (ULO 1)
• Demonstrate an understanding of the auditor's professional, legal and ethical responsibilities to their clients and third parties (ULO 2)
• Understand the audit planning procedures, evaluate the business risk and assess the internal control (ULO 4)
• Prepare auditing procedures for transactions and balances by conducting control and substantive tests (ULO 5)

Assignment Specifications

This assignment aims to enhance students' critical thinking skills and higher order application abilities by researching and analysing a legal case involving the litigation of an auditor/audit firm. Students will need to propose and document mitigating measures to address the risk of litigation and make appropriate recommendations to the audit approach, in terms of the audit strategy adopted, the audit procedures required in the audit program and other appropriate ways for the auditor to mitigate against both professional reputational damage and financial losses.

The assignment structure must be as follows:

1. Holmes Institute Assignment Cover Sheet - Full Name, Student No., Campus, Session No.
2. Executive Summary
• The Executive summary should be concise and not involve too much detail.
• It should make commentary on the main points only and follow the sequence of the report.
• Write the Executive Summary after the report is completed, and once you have an overview of the whole text.
• The Executive Summary appears on the first page of the report.

3. Contents Page - This needs to show a logical listing of all the sub-headings of the report's contents. Note this is excluded from the total word count.

4. Introduction - A short paragraph which includes background, scope and the main points raised in order of importance. There should be a brief conclusion statement at the end of the Introduction.

5. Main Body Paragraphs with numbered sub-headings - Detailed information which elaborates on the main points raised in the Introduction. Each paragraph should begin with a clear topic sentence, then supporting sentences with facts and evidence obtained from research and finish with a concluding sentence at the end.

6. Conclusion - A logical and coherent evaluation based on a thorough and an objective assessment of the research performed.

7. Appendices - Include any additional explanatory information which is supplementary and/ or graphical to help communicate the main ideas made in the report. Refer to the appendices in the main body paragraphs, as and where appropriate. (Note this is excluded from the total word count.)

Assignment Topic - Auditors and Legal Liability

Read the following extract from the ACCA (the Association of Chartered Certified Accountants) website, which is the global body for professional accountants, as stated:

"Over the past two decades the bill for litigation settlements of Big Four audit firms alone has run into billions of dollars. Examples include Deloitte's 2005 settlement of $250m regarding its audit of insurance company Fortress Re and PwC's $229m settlement in the lawsuit brought by the shareholders of audit client Tyco in 2007."

"Auditor liability is increasingly concerning, both in terms of audit quality and the reputation of the profession but also in terms of the cost to the industry and the barriers this creates to competition within the audit market."

Required

Given the importance of professional liability to auditors and the negative publicity this creates for the profession as a whole, research a recent case (Post 2000) where an auditor/audit firm was sued for professional negligence. Students may research cases from the UK, USA, NZ or Canada in addition to Australian cases.

With reference to the facts of the selected case, the significant Auditing and Accounting issues and the final judgement handed down in your selected case:

• Provide a brief description of the key events and the factual issues behind the case
• Explain the culpability or which parties were deemed responsible and why. Outline the damages imposed or the penalties and consider whether they were appropriate.
• investigate and explain the relevant issues in Auditing and Accounting raised by the case,
• The root-cause of the issues such as; market pressure, organisational culture, fraud etc.
• any problems, mistakes or misrepresentations made by the defendants, which contributed to the adverse judgement and the awarding of damages,
• Finally, provide recommendations and possible improvements to:
o the Audit Strategy,
o the Audit Program,
o Other effective measures;
which would prevent the recurrence of the same litigation in the future and maintain the professional reputation of auditors.

Attachment:- Audit, Assurance and Compliance.rar