Topics: Audit, External auditor, Auditing Pages: 4 (1067 words) Published: May 5, 2014
Name: Maharshi Pandya Student ID: PCC2388
Audit Assignment 1
Answer 1.
In our case study, King and Queen are the auditors and the plaintiff that is taking legal action against them is EFL. Negligence can be defined as any conduct that is ‘careless or unintentional in nature and entails a breach of any contractual duty or duty of care in tort owed to another person or persons’.(Godsell, 1993 P23) If EFL wants to claim for negligence than they will have to prove that the four elements exists (Gay & Simnett 2010, p. 153). 1) Duty was owed to the plaintiff by the defendant

2) Breach of duty of care
3) Plaintiff suffered loss or damage
4) Causal relationship existed between breach of duty and the lose or damage. In the case study of Pacific Acceptance Case, they established 10 principles and one of it was that whenever an auditor feels some suspicious activities, which may be because of some irregularities and which indicates towards some fraud, the auditor must take some action (Gay & Simnett 2010, p. 156). In our case study there was no action taken by the auditor even though they came to know that impulse was going through liquidity problems which was due reduction in inventory turnover and debtor turnover. If we have a look in the Thomas Gerrard & Son case, auditor should gather proper information when inventory are involved. Physical stock take should be done unless it in not rational to do it for the physical existence. (Gay & Simnett 2010, p. 155). In our case study auditor breached his duties by producing unqualified report without doing a physical stock take. So if we take under consideration these two case studies it can be said that there is an existence of element number 2, that proves that the auditors kings and queen did breach the duty of care. In the case study EFL received a loan in December 2012 which was placed into liquidation. This proves element 3 that impulse suffered a loss. An auditor is generally...
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