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MA611 Case Study Discussing Legal Responsibilities of Auditor Assessment Answer

Assessment Details and Submission Guidelines
MA611 Auditing Individual Assignment
Course NameMaster of Professional Accounting
Unit CodeMA611
Unit TitleAuditing
Assessment TypeIndividual Assignment
Assessment TitleA Case study in discussing the legal  responsibilities of the Auditor
Unit Learning Outcomes Addressed:a. Explain and apply the principles, practice and process of auditing to practical situations.
c. Compare and contrast the organisation’s and the auditor’s responsibilities for an audit.
d. Explain the importance of planning an audit and distinguish the steps involved.
e. Identify and critically evaluate the risks inherent in an audit.
Total Marks20 marks
Word limitNot more than 1,000 words

Assessment Task Description

In addition to the Submission Guidelines appearing on page 1, the assignment is to be completed individually. The submission into the specific assignment drop box in Moodle is to be made by each student individually.

This assignment is comprised is a single academic paper discussing a case, and is marked out of 20marks.

The marking rubric below sets out the requirements:

Principally you will be marked on four components:

  1. What things did the auditor do wrong/fail to do.
  2. Legal issues both from a statue perspective (corporate law) and other legal issues. 
  3. Ethical issues
  4.  Format, Presentation Quality and Demonstration of Research

(5 marks for each component)

As mentioned above, the assessment should be presented in an academic paper format. 

A key aspect in your choice of format/layout should be to ensure you impart your key messages effectively (i.e., complete the requirements) and efficiently (i.e., it should be succinct and take into account the word limit). 

Make sure all pages are numbered, and the text fits within the margins of your pages. Make sure to include the relevant heading. 


Prepare an Academic paper analysing and critically discussing the following case in terms of legal liability, and ethical failings. What might happen to Shirley and what defences she may have, and would they work (also what does the ASIC statement “refer the matter further” mean):


Shirley Simms is a  sole proprietor of Sims and Coy. and registered company auditor.

In March 2020, was approached by Mr Tom Shifty of Shifty Builders Pty Ltd  to audit the company. Mr Shifty explained that in a month’s time he planned to float the company, and required the Audit report, and also an Investigating Accountant’s Report to meet ASIC and the ASX requirements within that month. Shirley protested that the time line was short, however Tom offered her a bonus of $100,000 on top of her normal fees if she could complete the audit inside the timeline.  Mr Shifty explained that her brother Mark who had just been appointed CFO of Shifty Builders Pty Ltd had recommended her. Shirley realised that this was an opportunity to expend her client base, and move into public company auditing. Further, the $100,000 would help to repay her housing loan, which due to a downturn in the economy due to COVID 19, she had found difficult to service. She also realized that she would need support to conduct the audit and placing an advertisement in a casual jobs site, soon found a recent accounting graduate, who had no audit experience, and a first year accounting student. She appointed the recent graduate as Audit Manager, and the student as his Audit Senior, and sent them off to audit Shifty Builders, while she continued with the smaller audits the firm was involved in. The six smaller audits accounted for some $60,000 per annum and together with some tax and general accounting made up the total revenue of the firm up to this point of about $150,000 per annum. She instructed the new staff, that as time was short they were to prove the assets of Shifty Builders.

The new Audit Manager sent a letter to Shifty Builders’ main bankers (the XYZ Bank) asking for all details of the bank’s dealings with Shifty Builders, and completed a bank reconciliation, inspected all the other assets, and wrote letters to all the listed creditors and debtors of the company. The Audit Senior ticked off a number of physical assets including 500 term deposit receipts for deposits held with the Which Bank totalling $500,000.

The two newly appointed staff returned and advised that they had found everything in order, so in early April, Shirley issued a clean audit report, and satisfactory investigating accountants report. Two weeks later the share float opened. On the 1st May, Shirley’s brother appeared at her office ashen faced to advise that Mr Shifty could not be found, and the float trust account, which had held $5 million was empty, and he had discovered that the $500,000 of term deposit receipts was 100 copies of a $5000 term deposit receipt .

On 1st June a solicitor’s letter arrived on behalf of the new shareholders of the company seeking reimbursement of the $5 million they had contributed to the float.

On 2nd of June, a solicitor’s letter arrived on behalf of the existing family shareholders, two of whom were also listed with ASIC as board members.

On the 5th June ASIC notified Shirley that they would be conducting an investigation, and may refer the matter further.

On 7th June, a letter arrived from the Disciplinary committee of the professional accounting body of which Shirley was a member, asking for an explanation of the news reports they were hearing.


Audit Analysis

1. Introduction

The audit report is the key deliverable of the audit process conducted by the qualified auditor of the company. The users of the financial statement such as investors, shareholders, lenders, and other key stakeholders take their economical decision by considering the audit report. Therefore it is necessary to conduct the audit as per the auditing standard by the qualified chartered accountant. In this report, Shirley Simms has been appointed as the auditor of the Shifty Builders private limited to conduct the audit before the float of the company can be initiated ( Khodjaeva, 2020).

2. Appointment of the auditors

The fact of the case

Shirley Simms is the sole proprietor of the Sims & Coy. And register the company auditor. She has been appointed as the auditor of the Shifty builder’s private limited by Mr. Shifty on the recommendation of her brother Mark who is the CEO of the same company.

Law consideration

As per the Australian auditing standard 210 and the ethical guideline, the auditor should be engaged independently and he or she should not have any relationship with any of the board directors or key managerial persons in the company for which they are appointed as auditor. Because it can lead to a conflict of interest and also affect the independence of the auditors (Yu,  Kwak, Park, & Zang, 2020).

By following the above law and regulation it can be observed that Shirley's appointment as the auditor is not legal because her brother is CEO of the company as and it will lead to compromise the independence of the audit.

3. Scope of audit

The fact of the case

Shirley Simms has been appointed to conduct the audit within the month as asked by the Shifty to meet the requirement of the ASX and ASIC.

Law Consideration

As per the auditing standard and other guidelines issued by the relevant authority, the scope of the audit should be determined by the auditor through the engagement letter and the audited company cannot force the audit to conduct the audit as per their terms.

Hence it can be observed that Auditor must consider the above law and should not be ready to conduct the audit in hurry just to earn audit fees because many stakeholder believe the audit report for their decision making.

4. Hiring the unqualified audit staff

The fact of the case

Shirley Simms has hired the audit staff to conduct the audit fast so that float of the company can be initiated as soon as possible. A graduate person has been appointed as the audit manager and first year’s student has been appointed as the audit senior. (Kaptein, 2020)

Law Consideration

For the audit, only qualified audit personal are eligible to appoint in the audit team. He must have technical knowledge and certification from the relevant educational institute.

It can be observed that the audit team is not qualified and cannot be appointed as the audit staff hence auditor firm should appoint a qualified team that can assure the audit work by compliance with auditing obligation.

5. Document and fact verification

The fact of the case

Audit team appointed by the Shirley has conducted the document verification through asking for the receipts of the deposits and also sent the external confirmation letter to debts and creditors of the company. They have found everything in order.

Legal consideration

As per the auditing framework, an auditor should ask for the verification of the fact and documentation to assure the appropriateness of the financial transaction and to obtain the audit evidence. It will help to form an opinion on the financial statement of the company.

The above verification and auditing procedure implemented by the audit team and not by the Shirley which make it less useful verification because the audit team was not experienced and qualified to conduct the audit by themself. The main auditor Shirley should have conducted the review work of the audit team and also apply the auditing framework and standard to conduct the audit herself to assure financial statements.

After the above scenario of the various facts, it can also be observed that Shirley has issued a clean audit report for the company. Mr Shifty has also been disappeared with the money deposited by the shareholder in the float trust account.

In this case, an auditor can be responsible for any action taken by any of the employees or top management of the company, he is responsible for the work he has conducted. Therefore it would be not justifying to making the Shirley for Mr Shifty action.

6. Notice served by the ASIC and Disciplinary committee

As the money of the shareholder deposited in the float trust account has been empty and Mr shifty could not be found due to which the ASIC and Disciplinary committee have served the notice to Shirley concerning the matters.  Auditors of the company are bound to repay the relevant authority concerning the matter so that they can further investigate the matters. These authorities are the overseen mechanism that takes care of the relevant standard and maintains the high quality of auditing work because people trust the auditor for their opinion and take their economical decision appropriately. Hence Auditor of the company has to provide them all the details concerning the audit and all the examination of the fact and documentation has to be provided so that he can justify that auditing work has been done by following all the relevant law and regulation and auditing standards. If auditors failed to prove then he will also be liable to penalize as per the disciplinary committee action on this behalf (Amyar, Hidayah, Lowe, & Woods, 2019)

7. Conclusion

From the above, it can be observed and conclude that an auditor should follow the legal guidelines and norms as determined by the relevant authority concerning the auditing work. In the given case appointment of the auditor was not authorized as a relative was the CEO of the company in which Shirley was proposed to be the auditor. Auditing team should be qualified enough to conduct the audit otherwise audit will not have its objectivity.

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