Audit, Assurance and Compliance: Ryan Wealth Holdings Pty Ltd vs Baumgartner

Audit, Assurance and Compliance

Ryan Wealth Holdings Pty Ltd vs Baumgartner
Executive Summary
In light of the technological advancements, auditing has become an art and skill more than a
subject of knowledge and expertise. With the advancement towards a fast money mindset, it is
impossible to believe that businesses are being run without any malpractices. It is the duty of the
directors to prepare and present the financial information in a meaningful manner. The auditor is
responsible to audit the financial statements and issue an opinion whether the financial
statements projects an authentic view of the current situation. Ethics are moral principles guiding
the behavior of the person, whether it is the director of the company or the auditor. A lot of cases
have been reported on these areas and hence the auditing profession has faced the media
criticism several times. Such audit failures tarnish the credibility of the auditing profession. This
assignment discusses one such case and possible implication of the same. A few measures to
mitigate such audit risks have also been discussed.
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Ryan Wealth Holdings Pty Ltd vs Baumgartner
Contents
Introduction................................................................................................................ 4
Facts of the case........................................................................................................ 4
Root causes and pertinent issues of the case............................................................5
Understanding the reporting requirements of the auditing standards.......................5
Understanding auditor’s professional, legal and ethical responsibilities....................6
Understanding audit planning procedures..................................................................7
Audit procedures for transactions and balances........................................................9
Confirmation of investments has to be obtained at the year-end..............................9
Conclusion................................................................................................................ 12
References............................................................................................................... 13
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Ryan Wealth Holdings Pty Ltd vs Baumgartner
Introduction
Audit negligence is becoming a growing issue today. It arises due to the failure to perform the
audit according to the standards and principles set out by the applicable governing bodies. The
Sarbanes Oxley Act was enacted in 2002 for overseeing and regulation of accounting firms and
detection of the internal weakness that result in audit malpractice. The case selected for analysis
here is Ryan Wealth Holdings Pty Ltd vs Baumgartner. It is a case of audit of a Self Managed
Superannuation Fund (SMSF) where the auditor is found liable for the losses. The audit firm is
Baumgartner Partners. The audit of the SMSF was undertaken for the years 2007 to 2009. The
irregularities in reporting were failed o be detected for all these years and eventually when the
same was detected, the audit firm was held liable for monetary compensation against the losses
(Moroney & Trotman, 2016).
Facts of the case
• The trustees of Ryan Holdings Retirement Fund made investments in the form of Loans to
several entities and in unit trusts, in which the adviser had a personal interest.
• These investments were classified under the head ‘Mortgage Loans’ in the financial
statements. In reality, this was not a mortgage loan.
• The auditor was not provided with sufficient appropriate evidence to conclude the existence
of the mortgage loans.
• The auditor also failed to obtain reliable evidence to substantiate the existence of the
mortgage loans.
• Despite this, every year the audit was carried out and the auditor had issued an unqualified
report.
By the time these irregularities were discovered, the facility to redeem these investments was
almost lost and nonexistent.
Hence the client clearly laid the burden on the auditor’s failure which had resulted in huge
losses for the fund.
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