Government Intervention and Audit Importance

This assignment discusses the complex relationship between government intervention in organizations and the importance of audits. While reducing government intervention can theoretically lead to improved efficiency and performance, audits remain essential for evaluating financial reporting accuracy and reliability. The document examines various aspects of auditing, including its role in detecting misstatements, promoting transparency, and shaping organizational accountability.

Audit, Assurance and
Compliance- Auditors and
Legal Liability

Executive Summary
In this file, the report is related with audit and assurance and what are the effects when
any of the default is done. The file is based on the case between Deloitte and Livent where
default was done on the basis of professional negligence. There is the detail description about the
case that how issue was created and what are the legal remedies which is required to be paid by
Deloitte. Also, there is the explanation on the damages which paid by defaulter company. In the
end proper recommendation have been explained which will help to improve the result in future.

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1) Provide a brief description of the key events and the factual issues behind the case........1
2) Explain the culpability or which parties were deemed responsible and why. Outline the
damages imposed or the penalties and consider whether they were appropriate...................2
3) Investigate and explain the relevant issues in Auditing and Accounting raised by the case.. 3
4) The root-cause of the issues...............................................................................................4
5) Any problems, mistakes or misrepresentations made by the defendants, which contributed
to the adverse judgement and the awarding of damages........................................................5
6) Provide recommendations and possible improvements to solve the issue.........................5
CONCLUSION ...............................................................................................................................8
REFRENCES...................................................................................................................................9
.........................................................................................................................................................9

INTRODUCTION
Audit is defined as systematic and independent examination of books of accounts which
includes vouchers, documents, all relevant statutory records for the purpose of finding the
performance of the company that whether presented report is true and fair or not (Bumgarner and
Vasarhelyi, 2018). Auditing is required in each and every organisation because it helps to
determine the actual position of the company so that better results can be achieved in future. This
project report will be based upon Deloitte which is one of the multinational firm which deals in
the field of accounting and auditing. There will be detail description about the case with factual
issues behind it. This file will include the penalties which had been impost on the audit firm.
Also, their will be detail recommendation on audit firm, audit program and many more.
MAIN BODY
1) Provide a brief description of the key events and the factual issues behind the case.
The case was related with Deloitte and Livent. This case took place in Canada, where
Supreme Court of Canada decided that there is the professional negligence by the auditor of
Deloitte. Here, it was found that in year 1997- 1998, the director of Livent controlled the auditor
of their company where it was found that financial report was more solvent then which it shown
in the records. In this case, auditor fund that their was the irregularities in Livent accounting but
still audit of Deloitte didn't do anything because director of the company forced them to show
wrong data else they will remove remove the appointed director before the tenure of five years.
Later in 1998, the contain of audit was inaccurate which was discovered by new management
team of Livent.
In this case, the lower court declared that shareholder of Livent relied on the report which
was presented by the appointed auditor. So, it is the liability of Deloitte to compensate Livent
because if appointed team had said that the issue related to fraud then they would have come out
of the case. It was one of those case where professional negligence was found. Here, court
decided that auditor firm must compensate $84 million and after hearing this they tried to appeal
in Ontario court and their decision was also the same (Deloitte v Livent: The Scope Of Auditor
Negligence, 2018). Then case was entertained in high court where they also agreed with the
decision which was given by the other level of court and they said that Deloitte showed the
negligence which conducting audit program in Livent. As, there is the professional negligence
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because auditor must have informed each and every shareholder of the company rather then
listening to the order of directors of an association. Even, audit was conducted just to protect
Livent from accounting errors. So, supreme court decided that Deloitte is liable to pay near
around $ 40 million to Livent for their part of default.
2) Explain the culpability or which parties were deemed responsible and why. Outline the
damages imposed or the penalties and consider whether they were appropriate.
From the above case scenario, it can be seen that their was the breach of duty of care,
professional negligence, negligence misrepresentation and even auditor failed to discover the
fraud which was which was being performed by the directors of an organisation. It can be said
that the culpability in this was of Deloitte because they are professional body which have the
idea that what th0ose area where company is not performing their duty but the auditor of Deloitte
didn't found that. In this case, the complete responsibility was of Deloitte because they were
unable to perform their duty in which they are expert and they are the one due to which
shareholder of the company had to suffer and show the worst position of the company
(Judgements of the Supreme Court of Canada, 2017).
It is said that audit are the person who can easily find out the mistakes and fraud which
company perform just for the purpose of earning extra amount of profit. There are four types of
audit report and they are Unqualified Audit Report, Qualified Audit Report, Disclaimer Audit
Report and Adverse Audit Report. Among all the report, unqualified report is counted as the
clean report which shows that company is performing every rules and regulation. The submitted
report is clean in that is that reason where auditor can write that submitted report is true and fair.
Out of all the report, Averse report is counted as the worst report in which association have to
face lots of issues. In the above case, it can be seen that report which was present by auditor was
adverse still auditor approved as unqualified report due to which many of the investor had to
suffer from different kind of issues (Hines and et. al., 2015).
The damages which were imposed on Deloitte were not appropriate because shareholder
are required to believe on the report which was submitted to auditor of the company. Supreme
court decided to give the discount of twenty-five percentage to audit firm which was not fair
because they didn't perform their duty which was given to them. Even they misrepresented the
report due to which investor invested there money in the company (Deloitte v Livent: The Scope
Of Auditor Negligence, 2018). In this case, the liability which has raised upon Deloitte was not
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appropriate and they must have been penalised for the complete amount of money on which
company had to undergo for various problems. Here, penalties have been much and more harsh
also, the licence of the firm must have been cancelled because there is the possibility that this
kind of activity can be performed again in future by Deloitte if permission to work is given to
them.
3) Investigate and explain the relevant issues in Auditing and Accounting raised by the case.
It is examined from the above case that their non of the audit firm is allowed to work
unethically and if it found that they are working unethically then action can be taken at any
period of time (Baylis and et. al., 2017). It is necessary for auditor that they must present true and
fair report and if they are not able to delivery then it is not beneficial for conducting audit of the
company. There are some of the additional issues which must be addressed by auditor:
 Auditor are required to examine and each and every detail of the organisation in which
they are practising.
 They are required to mention the detail about work which is being conduced in the firm.
 It is necessary that auditor should not misrepresent the information of the company
because that might create issues for both investor and auditor.
 It is the duty of auditor to perform their duty by own and they must ensure that they will
not work as per the guidelines which is given any of the person which is connected
directly or indirectly with the organisation. Auditor are required to inform the supreme authority of the company when any of the
fraud is detected by them (Knechel and Salterio, 2016).
In the above case, it is found that auditor prepared false report due to which audit firm is
required to compensate to the company and even legal action can also be taken in that case. It is
said that many of the company is relied on the report which is prepared by auditor because that
will decided that how long an organisation can earn money.
There are most of the situation where authorised person of the firm do not allow auditor
to perform their task easily and freely because of that most of the audit report doesn't show true
and fair report. Even there is the issue in which audit firm is not appointed as auditor of their
company because they doesn't show true and fair report in most of the cases. It is necessary that
proper freedom must be given to auditor where they should be given the opportunity to express
their points on the audit which they have done. It is even necessary that if company forces the
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appointed auditor to present the fraud report then in that condition legal action must be taken on
that association.
4) The root-cause of the issues.
There are lots of issues in present scenario due to which auditor are required to face
various kind of problem in the current market. Although, auditor are the one who have to prepare
their report on the basis of presented report but still there are many situation where auditor are
not allowed to prepare fair report because of pressure which is created by the auditor (Bik and
Hooghiemstra, 2018). Some of the root-causes of the issue of unfair audit report are listed
below:
 Market Pressure: There are many situation in which auditor are required face lots of
problem and among them market pressure is also one of them. Here, auditor are
pressurised to prepare the false report so that company can earn more amount of profit for
longer period of time. It is necessary that how those problem can be solved because it is
creating lots of problem for the those firm which are engaged in auditing and legal
compliances. This are those company which prepare false accounting report which is
approved by the auditor who is appointed.
 Organisational Culture: It is the biggest issue due to which audit report are prepared as
per the demand and wants of an organisation. Here, in organisational culture auditor is
required to present the report as per the records which are presented in front of the
auditor i.e., irrelevant information or incomplete information. This is one of those rear
issues which cannot be solved easily because auditor is bound to fix the report which
shows the growth and profitability of the company (Brenninkmeijer and et. al., 2018).
 Fraud: It is also as similar as other area because under this audit try to present the report
in which they want to earn profit with the help of fraud. In this, it is found that audit tries
to show the document in which assets and liability of the company is totally irrelevant.
Even in the above case it is seen that auditor is doing fraud with shareholder by preparing
false report. There is the chances that atleast one of the member do involve in this type of
the case. For example: in above case directors where the one who were involved in fraud
for preparing the false report.
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5) Any problems, mistakes or misrepresentations made by the defendants, which contributed to
the adverse judgement and the awarding of damages.
There are most of the cases where audit show the false statement to the top level
management which have the negative impact on day to day working ability of the company.
False statement create lots of problem in future because it doesn't allow stakeholder to achieve
their targets on specific period of time (Short and Toffel, 2015). In the initial stage it is found
that false report always helps organisation to perform well but later on it shows the adverse effect
on day to day activity of an association. Adverse judgement affect on the worthiness of the
company. This is among those issue which creates problem for the organisation because once the
problem is found it is said that organisation and its shareholder have to face various kind of
issues which cannot be solved easily. In context of Deloitte and Livent, directors of the company
forced the auditor to perform as per their own willingness but that created issues for auditor
because once the management team was changed the sued the the auditing firm and even judges
of the court said that auditing firm must compensate in this case. Auditor awarded them with the
amount of money which was decided by the Supreme court.
The adverse judgement always create issues for the the auditor who have prepared the file
and it is said that once fact are disclosed, auditor is required to pay heavy charges. Here, auditor
tries to present the fraud report only on the basis of pressure which is created by any of the
member of the company (Everett and et. al., 2018). The result of this report shows the negative
effect on the reputation of audit firm. Even there is the chances the licence can also be dismissed
of those auditor who are involved in the case. So, it is necessary that auditor must try to prepare
the report which is based on the facts and report which is presented by the organisation for which
they are working as the auditor.
6) Provide recommendations and possible improvements to solve the issue.
Recommendation on audit programme
This is also called as the audit plan which is define as the action plan which auditor flow
to validate that an organization with the conformance with compliance regulation. It is
recommended that
 Organization should apply all the rules and regulation at the time of audit. Organization
should use the effective format of the rules and regulation which save the organization
from the fraud.
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 It is recommanded that first organization need to collect all the valid document. Check all
the document which is collected. All the term and policy must be use in this.
 It is comprehended that at the time of audit check all the factors of organization because
there is the many chances of the frond.
 It is recommanded that it is important for audit to ensuring that all the important area
should be considered at the time conducting the audit.
 It is recommanded that improve the accountability of audit team member towards work
performed by them.
 It is recommanded that before auditing auditor prepare the documents or working papers
which have or contain contain record of various audit procedures. Auditor applied which
serves as evidence against the change of negligence.
 It is recommanded that when the the audit in the process auditor should keep the record
of past use full information. This past useful information work effectively in the future.
 It is recommanded that the report which is made in financial term has been corrected.
Assure that financial information is correct or not in the report which is issued.
Recommendation on Audit strategy:
This strategy is used for the development of the plan in an effective way this strategy
included statement of the key decision which is needed for the plan of audit.
 In this it is recommanded that first organization need to the system, function of the
organization that include in the review.
 It is recommended that organization should conduct risk assessment because it is a good
practices result of this help the IS audit to justify.
 It is recommanded that organization should identify regulatory compliance requirements.
 It is recommanded the organization should have the enough information to identify and
select strategy and development of the audit programme.
 in it is recommended that organization should apply the audit at the right time and at ther
right direction.
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CONCLUSION
The above discussed report, it has been concluded that audit, assurance and compliance
services plays a crucial role in adding value to business. Along with this, it help company to put
their focus on attesting to financial statement as well as enable them to adhere to laws,
regulations and technical standards. Moreover, compliance audit allows the firm to assess the
overall effectiveness of business operation and helps them to provide accurate and reliable report
to company in order to reduce mistakes or errors. It also help them to maintain their strict system
of internal controls which prevent and detect various forms of fraud and other accounting
irregularities. Furthermore, audit strategy enable the firm to sets the direction, timing and scope
of an audit which helps them to meet the standards which is imposed by government and they
can easily accomplish their task in an effective manner. On the other hand, audit program helps
an auditor to identify the potentiality of team members and helps them to allocate or assign the
work based on their interest and skill. By, this company can attain high profitability in an
impressive way and there will be less intervention of government which leads them to improve
their overall efficiency and performance. However, audit is an integral component for every
organisation as it allow the auditor to evaluate misstatement in financial report and can develop
reliable financial report for internal and external purpose.
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REFRENCES
Books & Journals
Baylis, R. M. and et. al., 2017. Private lenders’ demand for audit. Journal of Accounting and
Economics. 64(1). pp.78-97.
Bik, O. and Hooghiemstra, R., 2018. Cultural Differences in Auditors' Compliance with Audit
Firm Policy on Fraud Risk Assessment Procedures. Auditing: A Journal of Practice &
Theory. 37(4). pp.25-48.
Brenninkmeijer, A. and et. al., 2018. Auditing standards and the accountability of the European
Court of Auditors (ECA). Utrecht Law Review. 14(1). pp.1-17.
Bumgarner, N. and Vasarhelyi, M. A., 2018. Continuous auditing—a new view. In Continuous
Auditing: Theory and Application (pp. 7-51). Emerald Publishing Limited.
Everett, J. and et. al., 2018. We have never been secular: Religious identities, duties, and ethics
in audit practice. Journal of Business Ethics.153(4). pp.1121-1142.
Hines, C. S. and et. al., 2015. Board risk committees and audit pricing. Auditing: A Journal of
Practice & Theory. 34(4). pp.59-84.
Knechel, W. R. and Salterio, S. E., 2016. Auditing: Assurance and risk. Routledge.
Short, J. L. and Toffel, M. W., 2015. The integrity of private third-party compliance monitoring.
Available at SSRN 2695429.
Online
Deloitte v Livent: The Scope Of Auditor Negligence. 2018 [Online] Available Through:
<http://www.mondaq.com/canada/x/666958/Audit/Deloitte+V+Livent+The+Scope+Of
+Auditor+Negligence>
Judgements of the Supreme Court of Canada. 2017 [Online] Available Through: <https://scc-
csc.lexum.com/scc-csc/scc-csc/en/item/16920/index.do>
(Baylis and et. al., 2017)(Knechel and Salterio, 2016)(Bik and Hooghiemstra, 2018)
(Brenninkmeijer and et. al., 2018)(Short and Toffel, 2015)(Everett and et. al., 2018)(Bumgarner
and Vasarhelyi, 2018)(Hines and et. al., 2015)
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