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Question - Legal liability of auditors (7.5% of total subject assessment) NFD Ltd is a distributor and warehousing facility for chemicals and fertilizer. It was reported to be carrying a very high level of inventory in its audited balance sheet at the time a successful takeover offer was made by Edge Ltd. Two months after the takeover, it is discovered that those inventories NFD does hold were considerably over valued and that they do not in fact possess the quantity of inventory claimed at the time of the audit. In the court action subsequently filed by Edge against NFD's auditors, the following matters were established in evidence: The auditors did not attend all stocktakes at year-end. They were present at those for the Sydney based operations of the company only. 50% of the company's inventory is purportedly held at the company's Bathurst facility and it is this inventory that does not exist. The Sydney based inventory is determined to have been overvalued by 35%. Although the auditors correctly verified the quantity of Sydney stock, they accepted managements valuation, which did not take account of considerable obsolescence. It is also raised in evidence that the auditors were subjected to considerable pressure by NFD's management to complete the audit within one month of the balance date. The auditors had held this audit for the past six years and there was no evidence of any previous misstatements of the value of inventory. Edge asserted that they had relied on the audited financial statements, as supplied to them by NFD in making their takeover offer. There is no evidence that the auditors were aware of this intended use of the accounts. Required:a) Prepare the case for Edge in their efforts to sue the auditors for negligence. Refer to relevant case law and precedents.b) Will Edge be successful in their legal action? Justify your position making reference to the relevant cases and precedents. c) Would your answer to b) change if Edge had written to the auditors telling them that they intended to buy NFD and were relying on the audited financial statements to assist them in making their decision?
Discuss what lapping means. What procedures can auditors employ for its detection? What is a cutoff bank statement? How are they used by auditors?
Which of the following methods of determining bad debt expense does not properly match expense against revenue?
The company's before tax cost of debt is 8% per annum. Calculate the incremental NPV of the lease agreement and ascertain if the company should take out the lease.
If the market rate of interest at time the bonds are sold is 8%, what will be the issuance price of the bonds?
Match the case with the ruling: Cases: Rulings: Caparo Industries Pty Ltd v. Dickman Duty of Care owed to third parties in the absence of a contract where the plaintiff has suffered physical injury Kingston Cotton Mill Co.
1 if you were given complete authority how would you propose that generally accepted accounting principles gaap should
The third GAAS of field work requires that the auditor obtain sufficient competent audit evidence to afford a reasonable basis for an opinion regarding the financial statements under audit.
Adjusting Entries: Interest receivable at 1/1/06 was $5,000. During 2006 cash received from debtors for interest on outstanding notes receivable amounted to $6,000.
an auditor is required to obtain a sufficient understanding of each of the components of an entitys system of internal
Imagine that you're the Senior Auditor on the Peach Blossom Cologne Company audit. The Partner on the engagement comes into your office and tells you she's not satisfied with the memo that Jasper Parsons (the former Senior) wrote on Understanding ..
Presented below is information related to McKenna Company. Compute the ending inventory at retail.
On July 1, 2007, Gale Sondergaard Company sold special-order merchandise on credit and received in return an interest-bearing note receivable from the customer. Sondergaard will receive interest at the prevailing rate for a note of this type. Both..
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