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company sue auditors and auditors are pleaded guilty then they will have
evidence to support themselves in court room in this way they can prove
that they did perform audit test diligently and with skepticism, and they
obtained substantial and reasonable audit evidence during the course of
audit to give opinion that financial statements are free to form any material
misstatements and are presented fairly and truly.
The Royal Bank of Scotland VS Bannerman Johnstone Maclay case in 2002
had a significant impact on the treatment of auditor liability in which the
court ruled out in favor of RBS because auditor knew the identity of third
parties in above case the identity of third party was not known to king and
queen.
b)
My answer would have had changed if the identity of the third party in this
case EFL is known to king and queen then certainly we would have become
liable for the negligence and the losses suffered by ELF in return. Because
court would have had provided the same verdict which was in the case of
RBS VS Bannerman which is very famous case on auditor's personal liability
and used widely in many countries to obtain guidance on case because the
main point of concern is case of personal liability is the acknowledgement of
the third party and whether the third party is known to auditor.
a)Many concern stakeholders put their faith and rely on the audit work
performed by the auditors they place their opinion on audit reports and
perform audit test to gain sufficient appropriate evidence this all would
be worthless if auditors are not independent, Actual independence
refers to the fact is that auditor personality and his work is free from
any undue influence and they are free to perform their work with great
professionalism and great independence in this way they only
stakeholders can rely on the work performed by auditors because they
are appointed by shareholders to give opinion the financial statements
and many people or concerned stakeholders rely on such information.
Perceived independence means auditors are perceived as
independent because the type of work they perform requires auditors
to free from biases and influence without auditor independence such
level of work cannot be performed they always have to work with great
professionalism and skepticism.
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b) Auditor responsibility and regulatory standards and
framework for following cases.
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associate should review the breakup of their fees from classes
reproduction.
Classic furnitures also provided chairs as a compensation for fees
which not adequate and is not allowed which could be Implied as a gift
from client which again impair auditor independence and questionable
mind that furniture is worth 50% of the total outstanding fees which is
material, another issue is the shares acquired in other unrelated
company which is not a reasonable means of obtaining fees from client
because if Chan and associate are appointed as an auditor of that
company they will have to give up those shares to avoid any threat
which could arise the bottom line is the fees should be predetermined
and should not include contingent pattern although this is not a case
here.