Auditing Standard Essay

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a. Would King & Queen be liable to EFL? Provide specific case references to support your answer. Whether King & Queen would be liable to EFL depends on King & Queen has failed its reasonable care and skill and its negligence to the immediate clients and persons other than the immediate clients. According to Auditing Standard, it is required the auditor must exercise the reasonable care and skill which expected to a professional. Moffit J in Pacific Acceptance Corporation v Forsyth and Others (1970) 90 WN (NSW) 29 described, “it is beyond question that when an auditor, professing as he does to possess the requisite skills, enters into a contract to perform certain tasks as auditors; he promises to perform such tasks using that degree of skill and care as is reasonable in the circumstances as they then exist.” Negligence is defined as any conduct that is careless or unintentional in nature and cause a breach of any contractual duty or duty of care in tort owed to another person or persons (Godsell, 1993). Where the auditor breaches the duty of care and has been negligent in conducting the audit work, consequently the auditor may be liable for any loss suffered from the auditor’s actions. Refer to ASA 200 – overall responsibility of auditor in conducting an audit is to consider the appropriateness of management’s use of the loan assumption in the preparation of the financial report, even if the framework of financial report does not take account of an explicit requirement for finance company to take accurate assessment of the company’s ability to borrow and continue its debt. The auditor has responsibility to obtain an understanding of the company as well as its events and conditions related to business risks, which may cast substantial doubt on the company’s capability when performing audit procedure throughout the audit. Following is an illustrative case

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