Audit And Assurance Service Assignment

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
Answer to Question 1............................................................................................................................ 2
Introduction........................................................................................................................................ 2
Elements of the Tort of Negligence.................................................................................................... 2
Whether the Liquidators of Framed are Likely to be Succeed............................................................2
Whether OEV can reduce the Liquidators’ Liability............................................................................2
Whether VicBank is Likely to Succeed............................................................................................... 2
Conclusion......................................................................................................................................... 3
Answer to Question 2............................................................................................................................ 3
References............................................................................................................................................ 6

2AUDIT AND ASSURANCE SERVICE
Answer to Question 1
Introduction
Negligence of the auditor is considered as a crucial aspect that affects both the audit works
and the audit clients. Liabilities of the auditors increase due to the presence of negligence. The aim of
the report is the analysis of negligence in auditing and its effects on the profession.
Elements of the Tort of Negligence
There are four elements of tort of negligence and they are as discussed below:
Duty – Duty refers to a legal obligation and a defendant needs to have owed a duty to the plaintiff in
order to get sued for negligence. In this context, the case between Donoghue vs. Stevenson (1932)
need to be mentioned where the civil law of tort of negligence and obliged business was established
for the observation of the duty of care towards the customers (Russell, 2016). As per the provided
case study, OEV has a duty to provide audit services to Framed.
Breach – This is a violence of duty and the duty must be violated by the defendant in order to be
liable for negligence. In this case, OEV violated the duty by being negligent in audit and therefore, the
auditor was not able in identifying the fraud carried out by two sales officer of Framed.
Cause – The plaintiff must be caused harm by the breach of duty (Gay &Simnett, 2017).
Harm – The plaintiff must suffer harm for suing for negligence. He/she cannot sue if he/she does not
suffer any harm. In this case, VicBank was suffered harm as it extended credit to Framed based on
the audited report provided by OEV (Gay &Simnett, 2017).
Whether the Liquidators of Framed are Likely to be Succeed
Application of the above-discussed four elements of tort of negligence shows that OEV, the
defendant owed duty to Framed, the plaintiff which provides Framed the right to sue OEV. Moreover,
breach in duty was there from OEV as it failed in detecting the fraud carried out in revenue and
receivables. However, it is not mentioned in the case that whether Framed had suffered any harm or
not in order to sue OEV for negligence. This reduces the possibility of success of the liquidators of
Framed (Gay &Simnett, 2017).
Whether OEV can reduce the Liquidators’ Liability
There are three ways that can reduce the liability of OEV to the liquidators of Framed. The
first way is not being negligent in the first place and this can be done by rigorously applying the
appropriate auditing standards. The second way is the inclusion of disclaimer of liability to the third
party in the wording of the audit report. Disclaimer does not reduce the whole liability, but reduces the
scope for the courts to assemble liability. The third way is the use of Liability Limitation Agreement
(LLA) for the reduction of threat of litigation from the liquidator.
Whether VicBank is Likely to Succeed
Based on the four elements of tort of negligence, it can be determined that OEV has duty of
care towards VicBank as it used the audited financial statements provided by OEV for deciding