Module: Audit and Assurance
Seminar 4 – Auditor’s Liability, Appointment, Resignation, Removal & Client
Screening
Question 1
Auditors can only be successfully sued if they have a contract with the parties
involved. Discuss citing relevant cases. (10 marks)
No, this statement is not true. Those who haven’t got a contract who can prove
proximity and foreseeability can sue auditors. This third party can be a bank or a
potential shareholder.
Question 2
Auditors who during the course of their work come into possession of unpublished
information which they use in a decision to buy shares in the company would only be
subject to criminal law proceedings. Discuss. (10 marks)
Yes, a criminal offence has been committed. The insider information has been used
for their personal benefit.
Question 3
If auditors fail to discover that a manager of a payroll department has for a number of
years been stealing money from the company amounting to £50,000 they are guilty
of professional negligence. Discuss. (10 marks)
You as an auditor would argue that it would be the directors and the
management’s primary responsibility to detect this.
Ask: is £50,000 material enough for people to be worried that the auditor
didn’t find out about it. The answer would be that it would depend on the
income size of the organisation. If the organisation is a big one that makes
millions of pounds in revenue, then this amount is insignificant. But if it is a
small company where the profit they make is £200,000, then this £50,000 will
be significant.
Pay attention to how long the manager has been stealing and why has the
internal control system not detected it.
Seminar 4 – Auditor’s Liability, Appointment, Resignation, Removal & Client
Screening
Question 1
Auditors can only be successfully sued if they have a contract with the parties
involved. Discuss citing relevant cases. (10 marks)
No, this statement is not true. Those who haven’t got a contract who can prove
proximity and foreseeability can sue auditors. This third party can be a bank or a
potential shareholder.
Question 2
Auditors who during the course of their work come into possession of unpublished
information which they use in a decision to buy shares in the company would only be
subject to criminal law proceedings. Discuss. (10 marks)
Yes, a criminal offence has been committed. The insider information has been used
for their personal benefit.
Question 3
If auditors fail to discover that a manager of a payroll department has for a number of
years been stealing money from the company amounting to £50,000 they are guilty
of professional negligence. Discuss. (10 marks)
You as an auditor would argue that it would be the directors and the
management’s primary responsibility to detect this.
Ask: is £50,000 material enough for people to be worried that the auditor
didn’t find out about it. The answer would be that it would depend on the
income size of the organisation. If the organisation is a big one that makes
millions of pounds in revenue, then this amount is insignificant. But if it is a
small company where the profit they make is £200,000, then this £50,000 will
be significant.
Pay attention to how long the manager has been stealing and why has the
internal control system not detected it.
