ETHICS AND LEGAL ENVIRONMENT

Running head: ETHICS AND LEGAL ENVIRONMENT
Ethics and Legal Environment
Name of the Student
Name of the University
Author’s Note

1ETHICS AND LEGAL ENVIRONMENT
Table of Contents
Answer to Question 1......................................................................................................................2
Introduction..................................................................................................................................2
Outlining All Elements of Tort of Negligence............................................................................2
Likelihood of Success of the Liquidators....................................................................................2
Can Liability of OEV can be reduced..........................................................................................3
Likelihood of Success of VicBank..............................................................................................3
Conclusion...................................................................................................................................3
Answer to Question 2......................................................................................................................4
American Accounting Association (AAA) Model......................................................................4
References........................................................................................................................................8

2ETHICS AND LEGAL ENVIRONMENT
Answer to Question 1
Introduction
Negligence refers to a principle which was originally established in common law and this
has now modified and preserved into legislation. Negligence is developed when reasonable care
and skill is not exercised by a person. In case of auditing, negligence is developed when the
auditors do not exercise reasonable care and skill in audit engagement (Laing & Hoy, 2018).
Outlining All Elements of Tort of Negligence
The Civil Liability Act 2002 is responsible for governing the negligence related claims in
Australia (legislation.nsw.gov.au, 2020). Tort of negligence consists of four elements.
Duty of Care – This element states that OEV has a legal duty of taking reasonable care of the
audit of Framed. In order to sue OEV, Framed needs to prove that there is the existence of duty
of care between it and OEV.
Breach – In case Framed is successful in establishing that OEV owed a duty of care to them, it
will be required to show that this duty of care is breached by OEV.
Causation – This element requires Framed to prove in a negligence claim is causation. More
specifically, Framed needs to shows that its damage or harm came as a result of the breach of
duty of care.
Damages – In case Framed proves duty of care, breach and causation, it will be eligible for
receiving compensation for the damage or harm that has been caused (Davies, 2017).
Likelihood of Success of the Liquidators
Assessing the likelihood of the success of the liquidators of Framed against OEV requires
the consideration the four elements of tort of negligence. First, OEV owes a duty to take
reasonable care to the audit of Framed which establishes duty of care. Second, this duty of care is
breached by OEV because of issuing unmodified audit opinion even when the sales and
receivables were materially overstated; this violates the auditing standard of ASA 700 Forming
an Audit Opinion and Reporting on a Financial Report (auasb.gov.au, 2020). Now, in order to be
successful against OEV, Framed must prove that they had to face certain harm and damage