a) NO:
A shareholder cannot sue the auditor individually if he relied solely on audited financial statements as a basis for investing in a company.
However the auditor could be liable if he knew that his report would be used to make investment decision „Hedley Byrne principle?
b) Mr. Mutiso must prove that: -
i) That XYZ company indeed carried out the audit work negligently
ii) That as a direct consequence of XYZ?s negligence he suffered financial loss
iii) That XYZ knew or ought to have known that the accounts will be relied upon for investment decisions by John Mutiso i.e prove that XYZ Co. owed him a duty of care.
iv) That Mr. Mutiso actually relied on the report. No other external auditors whatsoever influenced his decision making but just that of the audit report.
c) The auditor should ensure that he is competent enough to carry out the audit assignment in order to be able to carry it out according to the professional standards. He should also ensure that he actually conducts this audit in accordance to the standards set by both professional and ethical bodies and in utmost care. By doing so, he will be able to prove that the audit was not carried out negligently.
-The audit should be carried out in detail and every aspect of it taken seriously. If the information necessary in one area are unavailable. The auditor should obtain a letter of representation in order to
ensure that he makes an informed decision and he can be able to prove so, if the need arises.
-The auditor can enter into an agreement with his client that his report should not be used by another person apart from the client.
-Include a disclaimer of liability clause in the relevant document or report. Example of such a clause would be “ while every care has been taken in the preparation of this document, it may contain errors for which we cannot be held responsible”
-Taking professional indemnity insurance cover.
johnson mwenjera answered the question on March 28, 2018 at 07:51
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Distinguish between Accrual concept and Prudence concept
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Distinguish between Accrual concept and Prudence concept.
Date posted:
March 23, 2018
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The auditing guideline on ‘recording’ requires audit working papers to be sufficient complete and detailed so that an experienced auditor who has no previous connection...
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Required:
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March 22, 2018
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Give four examples of internal audit work that may be used by the external auditor
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Give four examples of internal audit work that may be used by the external auditor
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March 22, 2018
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Explain the matters you would consider and the work you would perform to enable you assess the extent to which you would rely on the...
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March 22, 2018
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March 22, 2018
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March 22, 2018
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March 22, 2018
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Discuss the 4 main methods of determining depreciation.
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March 22, 2018
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Date posted:
March 21, 2018
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“Action must be specifically taken to prevent the occurrence of frauds involving the assets of the company”, Finance Director of Food All Limited addressing accounting...
(Solved)
“Action must be specifically taken to prevent the occurrence of frauds involving the assets of the company”, Finance Director of Food All Limited addressing accounting staff of the company. Of particular interest to the directors are:
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2. The receipt of cash from customers.
3. The company’s cheque books
4. Issue of credit notes to debtors.
Required:
a. For each of the above, explain how a fraud can occur in the area.
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Date posted:
March 16, 2018
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Answers (1)
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The Companies Act (Cap.486) sets out the duties of the auditors for a company in respect of his report and other matters.
Required:
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(Solved)
The Companies Act (Cap.486) sets out the duties of the auditors for a company in respect of his report and other matters.
Required:
a. State four situations under which the Act requires auditors to qualify their report.
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Date posted:
March 16, 2018
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Answers (1)
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The principle objective of the verification of liabilities, commitments and contingencies is to form an opinion as to their completeness, existence, valuation and presentation in...
(Solved)
The principle objective of the verification of liabilities, commitments and contingencies is to form an opinion as to their completeness, existence, valuation and presentation in the financial statements.
Required:
a. Why does the auditor examine statements received from suppliers of goods and services?
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c. How would the auditor ensure that the amounts accrued for wages and salaries due but unpaid were properly calculated and recorded in the books?
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Date posted:
March 16, 2018
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Answers (1)
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The auditing guideline on ‘planning, controlling and recording’ contains the following statement with regard to working papers: ‘audit working papers should always be sufficiently complete...
(Solved)
The auditing guideline on ‘planning, controlling and recording’ contains the following statement with regard to working papers: ‘audit working papers should always be sufficiently complete and detailed to enable an experience auditor with no previous connection with the audit subsequently to ascertain from them what work was performed and to support the conclusions reached.’
Required:
a) Describe four benefits that the auditor will obtain from working papers that meet the above requirement.
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c) List three types of information which is normally retained in the audit file and state why such information should be available for reference in the course of an audit.
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Date posted:
March 16, 2018
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Answers (1)
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Advantages of maintaining control accounts
(Solved)
Advantages of maintaining control accounts.
Date posted:
March 16, 2018
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Answers (1)
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a. Briefly explain two practical circumstances when the auditor may be liable for damages arising from material misstatements in published financial statements on which the auditors...
(Solved)
a. Briefly explain two practical circumstances when the auditor may be liable for damages arising from material misstatements in published financial statements on which the auditors have expressed an audit opinion.
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c. Explain how an audit firm can minimise its potential legal liability for professional negligence.
Date posted:
March 14, 2018
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Answers (1)
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a. Explain why auditors carry out circularisation of debtors
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c. Describe in...
(Solved)
a. Explain why auditors carry out circularisation of debtors
b. Distinguish between ‘positive’ and ‘negative’ debtors circularisation procedures
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Date posted:
March 14, 2018
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Answers (1)
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a) Describe the reasons for maintaining proper audit working papers.
b) The documents, records and related information listed below are normally maintained in ‘permanent’ audit...
(Solved)
a) Describe the reasons for maintaining proper audit working papers.
b) The documents, records and related information listed below are normally maintained in ‘permanent’ audit file.
In each case indicate the importance of maintaining the respective document, record and
information.
• Memorandum and articles of association:
• Principal activities and locations;
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Date posted:
March 14, 2018
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Answers (1)
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(Solved)
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Required:
a) Explain why a letter of engagement is sent before any new audit appointment is accepted.
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March 14, 2018
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