Auditing Issues in Far Faraway Pastoral Limited

Running head: ACC568 AUDITING
ACC568 Auditing
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2ACC568 AUDITING
Table of Contents
Introduction......................................................................................................................................3
Answer 1..........................................................................................................................................3
Answer 2..........................................................................................................................................5
Answer 3..........................................................................................................................................9
Exercising due care in audit of TRC............................................................................................9
Guilty of contributory negligence................................................................................................9
Duty of care to McCarran Pastoral............................................................................................10
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11

3ACC568 AUDITING
Introduction
Samway Baker Fitzgerald (SBF), the accounting firm with offices at various places of
Australia has most of the clients are from agriculture, manufacturing and mining industries. After
discussing regarding the auditing details for one of its major clients Far Faraway Pastoral
Limited (FFA), the audit manager came across some issues regarding 3 of the senior auditor of
the audit team. The objective of the report is to advise Samantha Gabrielle, one of the senior
auditors regarding the ASX Corporate governance and the recommendations that may have been
breached by her. The report will further, analyse the information provided by another senior
auditor Steve Barker through using the American Accounting Association (AAA) model.
Moreover, the report will focus on whether SBF failed in exercising due care in audit and
whether FFA is guilty for contributory negligence (Abbott et al., 2016).
Answer 1
As per the information provided by Samantha Gabrielle, board of FFA is comprised of
CEO, CFO and 3 non-executive directors. As per the requirement of ASX corporate governance
principal 2 – structure of the board for adding value, the listed entity shall have board of
appropriate composition, size, commitment and skills that will enable it to discharge the duties
effectively (Asx.com.au, 2019). As per the requirement of corporate governance, the listed entity
shall have effective and high performing board for proper governance of the entity. Board of the
entity must have the nomination committee that must have at least 3 members, majority of which
shall be independent directors and must be chaired by any independent director. It shall further
disclose the charter of committee, members of the committee and number of times the members
of the committee met during the year (Asx.com.au, 2019). However, if the company does not

4ACC568 AUDITING
have any nomination committee, the same shall be disclosed and the entity shall further disclose
the procedure it shall use for addressing the succession issues of the board. Here in the given
case of FFA though it is provided that out of total 5 members of the board, 3 members that is
maximum number of directors are non-executive directors. Though maximum numbers of the
members of the board are independent, one of the non-executive directors Kevin Oliver will not
be considered as independent as he has substantial shareholding that is 11% in the company
(Asx.com.au, 2019). Further, as per the recommendation of 2.3 the director will not be
considered as independent if he is or was within the period of last 3 years in the material business
relationship as a customer or supplier with the entity. However, one of the non-executive
directors Mathew James was a major supplier for the entity. Hence, none of the directors of the
board will be considered as independent (Asx.com.au, 2019).
Further, as per recommendation 2.5, the chair of the board shall be an independent
director. However, in case of FFA the chair of the board Kevin Oliver will not be considered as
independent as he has substantial shareholding of 11% in the company. As per the
recommendation 2.2 the entity shall have and must disclose the skills matrix that will assist is
identifying the gaps, if any in collective skills of the board. It will help in analysing the absence
or presence of particular kill by particular director (Asx.com.au, 2019). As per the given
information, one of the non-executive directors of the company Jacqueline Grace is an
orthopaedic surgeon. Hence, he does not form appropriate skill for carrying out the activities as a
director for an agricultural entity. Therefore, the company is violating the various
recommendation of corporate governance requirement of principal 2.