Report on Audit and Assurance Services

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

1AUDIT AND ASSURANCE SERVICES
Table of Contents
Answer to Question 1.................................................................................................................................. 2
Answer to Question 2.................................................................................................................................. 3
References.................................................................................................................................................. 6

2AUDIT AND ASSURANCE SERVICES
Answer to Question 1
Introduction
This report discusses about the elements of tort of negligence associated with the provided case.
After that, applying the concept of tort of negligence, this report discusses whether the liquidators of
Framed and VicBank would likely to be successful in the legal actions against the auditors of OEV. It also
shows the ways of reducing the liabilities of the auditors.
Elements of Tort of Negligence
Four particular elements of tort of negligence have key relevance with this case; they are Duty of
care, Breach of duty of care, Cause and Harm. Any legal obligation of the auditors towards the clients is
considered as duty of care; and OEV has the duty of care towards Framed to issue the appropriate audit
report based on correct audit evidences (Van Ho & Terwindt, 2019). Any violation of this duty of care is
regarded as breach; and OEV might be chargeable for duty of care as revenue and receivables were
overstated after issuing unmodified audit opinion. In order to be sued for negligence, the auditors must
cause harm to the client or any user of audited financial statements. Framed and others users of OEV’s
audit report might suffer damage or harm due to the wrong audit opinion of OEV (Laing & Hoy, 2018).
Success of Liquidators of Framed
Based on the above-discussion, it can be established that OEV had duty of care to Framed as
OEV was their audit partner. In the provided situation, there was violation in the duty of care as the sales
and receivables were materially overstated even after OEV performed the audit and issued unmodified
audit opinion. At the same time, the auditors were unable in assessing the going concern risk of Framed
and the company was unable to pay off its debts after liquidation. These show that OEV caused harm to
Framed. Since negligence is there from the end of OEV, the success rate is high for the liquidators of
Framed against OEV (Chapple & Mui, 2015).
Minimization of Liability
It was required for the auditors of OEV to take into consideration all the necessary audit evidence
and risk situations in order to avoid being negligent and to recognize the fraud activities by the two sales
representatives of Framed for achieving the sales bonus. This was one major way of reducing their
liabilities to the liquidators of Framed. Apart from this, OEV would have been required to include provision
associated with liability in the audit report of Framed so that they could reduce their liability. However,
both of these methods were not adopted by OEV. For this reason, they do not have any way to reduce
the liability to the liquidators of Framed (Kurihama, 2016).