Evaluating of Easy Finance Limited

Question: Discuss about the Evaluating of Easy Finance Limited. Answer: Introduction: Easy Finance Limited has mainly faced losses due to the audit report, which is been provided by King Queen auditing firm. However, for instant it could be evaluated that the auditing firm is liable to EFL as based on their auditing report investment was conducted. Christensen, Glover and Wood (2012) mentioned that auditing firm has been prosecuted in many cases for the negligence of the auditor in auditing financial report. On the other hand, Schmidt, Wood and Grabski (2016) argued that after the augmentation of liability limitation agreements (LLAs) in 2008, auditors are able to reduce the litigations provided by third parties. Relevant cases have been conducted, where the auditors has been held liable for the negligence in their auditing report. Donoghue v Stevenson (1932) AC 562, mainly stated the negligence, which might be conducted on part of the auditors in depicting the auditing report. Candler V Crane Christmas Co (1951) 2 KB 164 and Ultramares Corporation v Touche (1931) 174 NE 441 mainly states that auditors did not owe any duty of care to the plaintiff as there is no contractual obligations. Twomax v Dickson, McFarlance Robinson (1983) SLTR 98, mainly stated that loss incurred by the negligence of auditing report allowed the plaintiff to claim the required damages from investors. Scott Group Ltd v McFarlane (1978) 1 NZLR 553, mainly stated the failure of auditors were accepted, however, there was no damages awarded to the plaintiff. With the help of above depicted cases, relevance of the liability of King Queen in terms of auditing negligence could be evaluated. However, the cases mainly stated that EFL being the third party is not liable to pay the damages to EFL as they have not consulted them before conducting the investment. Any kind of consultation conducted by EFL could have been made the auditing firm liable. Moreover, from the above-depicted cases it could be evaluated that only once the auditing firm was held responsible and forced to pay the damages encountered by the investors. Homb et al. (2014) mentioned that auditing firm like Ernst Young had to pay only 10 million in damages to the regulators for conducting auditing negligence in Lehman brothers books. Moreover, after the augmentation of the liability limitation agreements (LLAs) in 2008, investor must be more reluctant in using the auditors review, as it reduces the liability of the auditors substantially. Thus, according to the above cases and change in the regulations King Queen is identified as not liable for the overall damages incurred by EFL by conducting investments in Impulse Limited. Determining whether King Queen is liable to Easy Finance Limited (EFL) if the scenario changes: The change in scenario, where King Queen is firstly consulted by EFL before conducting the investment mainly changes the whole situation. In addition, the situation mainly provides liability to the auditing firm as on their opining EFl made the investment. Anderson et al. (2012) mentioned that litigations against inappropriate and negligence could be prosecuted in the court, which might allow the plaintiff to claim the required damages incurred from wrong advice. On the contrary, Brawley et al. (2015) argued that any kind of economic down turn, which reduced the viability of the investment advice, could not be claimed in court of law. Moreover, King Queen being the auditing firm of Impulse Pyt Ltd is restricted from the regulation laid down by GAAP for securing the internal data of the company. However, the approach of EFL to King Queen auditing firm for evaluating the financial performance and condition of Impulse Pyt ltd mainly bounds the auditing company to conduct specific valuation in determining the viability of the investment decisions. Specific case L. Shaddock and Associates Pty Ltd v The Council of the City of Parameters (1979) 1 NSWLR 566, mainly states that loss incurred from information or advice provided by auditing mainly exercises foresee ability. From the evaluation of the case it could be understood that wrong advice provided by auditing firms could be prosecuted in court and relevant claims could be acquired by the plaintiff. According to AASB, auditors are mainly liable for loss incurred by companies if relevant advice is been provided in exchange of monetary fees. However, Melidis et al. (20 14) argued that if the limited labiality agreement or disclosure agreement is been signed between the two parities then the chances of damage recovery by the plaintiff is reduced substantially. Thus, the change in scenario mainly makes King Queen auditing firm liable to the claims presented by EFL. Stating the significance of actual and perceived auditing independence: Auditing independence mainly allows the auditors to provided unfiltered information to the stakeholders regarding performance of the company. There are two types of independence, which is been provided by auditors, actual and perceived. The auditors independence mainly helps in authenticating the viability of the companys performance in the previous fiscal year. The overall derivation of actual and provided independence is depicted as follows. Actual independence: The real independence, where the auditors is free from any kind of manipulation or restriction is known as the actual independence provide to auditors. In this context, Knechel (2016) cited that independence in the auditing process mainly helps in reducing misstatement in the auditors report and depict actual financial position of the company. However, Martin, Sanders and Scalan (2014) argued that auditors mainly chose not to accept the independence as lucrative offers allows them to increase monetary gain. Furthermore, investors in reviewing auditing process of the company mainly demand use of the actual independence in the auditing process. Perceived independence: Perceived independence mainly allows auditors to tackle the valuation problems, which is hindered in the viability of the audit report. In addition, the perceived independence mainly helps in reducing the misstatement, which could arise from high asset valuation. Thus, the perceived independence mainly helps the auditors to detect the actual and reliable amount of assets, which could help in improving viability of the auditors report. Melidis et al. (2014) argued that perceived independence might reduce viability of the audit report if the auditor takes inappropriate valuations during the audit approach. Evaluating the individual situation based on professional standards and regulatory requirements: The first situation mainly states that Bob had used the annual report and internal information of Club Casino in its assignment. In addition, Bob also indicated to uses this information in a publication, which mainly evaluates the auditing rules laid down by AASB. As per the AASB regulation, auditors or relevant evaluators cannot publish internal information of the company without their proper consent. The confidentially agreement is mainly breached if BOB has used the internal information of Club Casino, which will in turn attract legal litigation. Shah and Jarzabkowski (2013) mentioned that confidentiality agreement mainly limits the misuse of internal information by the auditors to increase their monetary gain. The second situation mainly states that Wendy has been conducting secretarial duties for past six months in Ace limited, which mainly depicts the violation of GAAP and auditing rule,. This violation might mainly be reduced by terminating Wendy from the current position of company secretary. Ruebsamen and Reich (2013) mentioned that as per the GAAP rules company secretary is responsible to gathering and keeping sensitive information, which could be misused by external parties. Thus, appropriate secretary could be appointed immediately after terminating Wendys position. The third situation mainly states that Leo being the eldest son of the foreman of Precision Machinery Limited is conducting auditing procedures. Moreover, as per the rules laid down by GAAP and IASB, relative of companies workers are not included in the audit committee. This deprivation mainly helps in maintaining the ethical practises of the audit procedure. Thus, for correcting the situation either its father or Leo could resign from the designated post in the company. Duncan and Whittington (2014) mentioned that rules laid down by GAAP mainly reduce the unethical practises, which might be conducted by companies in deriving their financial report. Furthermore, violation might increase any kind of litigations, which might be faced by the company from appropriate regulatory. The fourth situation mainly states the non-payment of auditing fees by Classic Reproduction Pty Limited to its auditing firm for the past three years. The threat given by Chan Associates mainly states the resignation as the audit partner if Classic Reproduction Pty Limited does not pay for its services. Moreover, in fear Classic Reproduction Pty Limited mainly provided its auditors with 50% of the payment in furniture and 25% in shares. However, the audit rules mainly state that auditing firm are restricted from taking any kind of bribes as a form of shares or products. Thus, Chan Associates could face litigations if it accepts the provision provided by Classic Reproduction Pty Limited. Hence, the return of all the favours could be helpful for the auditing company by following the laid down rules of GAAP (Knechel 2016). Moreover, the auditing company could effectively withdraw consent from the annual report of Classic Reproduction Pty Limited. Reference: Anderson, U.L., Christ, M.H., Johnstone, K.M. and Rittenberg, L.E., 2012. A post-SOX examination of factors associated with the size of internal audit functions.Accounting Horizons,26(2), pp.167-191. Brawley, S., Clark, J., Dixon, C., Ford, L., Nielsen, E., Ross, S. and Upton, S., 2015. History on trial: Evaluating learning outcomes through audit and accreditation in a national standards environment.Teaching and Learning Inquiry: The ISSOTL Journal,3(2), pp.89-105. 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