Audit and Assurance Service - Case Study

Running head: AUDIT AND ASSURANCE SERVICE
Audit and Assurance Service
Name of the Student
Name of the University
Author’s Note

1AUDIT AND ASSURANCE SERVICE
Table of Contents
Question 1.......................................................................................................2
1. Facts of the Case......................................................................................2
2. Level of Provided Assurance and Nature of Evidence...............................2
3. Remedies Sought by Regulatory Agencies...............................................3
4. Remedies Sought by Company Stakeholders...........................................4
5. Challenges and Opportunities for Audit Firms in a Post-Banking Royal
Commission..................................................................................................4
Question 2.......................................................................................................6
1. Reasonable Care and Skill by the Audit Firm............................................6
2. Procedures of Presenting the Case by the Lawyers of ABC......................7
3. Reasons for Still Offering ABC a Significant Settlement Amount..............8
References.......................................................................................................9

2AUDIT AND ASSURANCE SERVICE
Question 1
1. Facts of the Case
The fact is that the audit work of KPMG had to face scrutiny from the
regulators as it failed in providing the correct advice to Discovery Metals on a
business takeover deal. Apart from this regulatory scrutiny, the audit firm
had to face a legal case from the side of the shareholders of Discovery
Metals as they had to face major loss after Discovery Metals went into
liquidation because of the inappropriate advice of KPMG (afr.com, 2020).
Moreover, there was a inflated increase in the principle assets of the client as
they misjudged the situation on the basis of the wrong advice from the audit
partner. More specifically, the Board of Directors of Discovery Metals decided
to invest in an off-market takeover where they had to buy the shares at a
price of $1.70 per share; and in accordance with the total worth of the
company, the price of per share was $1.65 (afr.com, 2020).
In spite of this wealth, KPMG advised the Board of Directors of
Discovery Metals not to invest in the takeover bid as between $1.74 and
$2.22 was the fair value of the market share of the company at that time.
Since there was not adequate number of vote of the shareholders by
complying with the advice of KPMG, the takeover bid got rejected by the
Board of Directors of Discovery Metals (afr.com, 2020). However, after the
rejection of this takeover bid, the company’s price of shares decreased to
$0.34 per share which led to the liquidation of the company. Therefore, it can
be said that the inappropriate advice of the auditors of KPMG led to the
liquidation of Discovery Metals that did not leave anything for its
shareholders (afr.com, 2020).
2. Level of Provided Assurance and Nature of Evidence
The auditors tend to use three types of assurance based on the
acquired information and analysis of the same information; they are

3AUDIT AND ASSURANCE SERVICE
reasonable assurance, limited assurance and absolute assurance. Auditors
provide reasonable assurance when they assess the presence of a remote
possibility that material misstatements can be there in the financial
statements (Nicoll, 2016). Auditors provide limited assurance when the
assessment shows that there is high possibility of the presence of material
misstatements in the financial statements. Auditors provide absolute
assurance when their assessment shows that there is not any likelihood of
the presence of material misstatements in the financial statements. Delivery
of absolute assurance can be seen by KMPG to Discovery Metals as the audit
firm did not mention the presence of any doubt on the fair market value of
the shares; and it eliminates the delivery of neither reasonable assurance
nor limited assurance (Carter et al., 2015). Moreover, expressing the level of
assurance requires the auditors to consider two natures of audit evidence
which are conclusive evidence and persuasive evidence. Persuasive evidence
requires additional proof on the credibility of the acquired evidence, not
further evidence is needed for the auditors while assessing the conclusive
evidence as this is considered as concrete evidence. The auditors can only
provide absolute level of assurance when this decision is backed by solid
concrete audit evidence. It implies that the auditors of KPMG acquired
conclusive evidence on the share price of Discovery Metals in order to advice
the company (Axelsen, Green & Ridley, 2017).
3. Remedies Sought by Regulatory Agencies
When an audit firm involves any kind of squinty and legal cases for
inappropriate audit findings, certain remedies are south by the regulatory
agencies; and the same is applicable in case of KPMG. The remedies are
mentioned below:
 It is required for KPMG to appoint an external reviewer for reviewing
their audit work as this is a crucial aspect for maintaining the audit
quality (Ball, Tyler & Wells, 2015).