Auditing - Tort of Negligence

Running Head: AUDITING
AUDITING
Name of the Student
Name of the University
Author Note

AUDITING1
Table of Contents
Question 1..................................................................................................................................2
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Tort of Negligence.................................................................................................................2
Action against OEV...............................................................................................................3
Reduction of Liability............................................................................................................3
Success in Action against OEV..............................................................................................4
Conclusion..................................................................................................................................4
Question 2..................................................................................................................................5
Reference....................................................................................................................................8

AUDITING2
Question 1
Introduction
Auditing is the process of examining financial records of the entity for determining
that whether they are accurate as well as according to the applicable laws, regulations and
laws. It is used for providing confidence for all the stakeholders that accounting reports of
organization are accurate. Hence, this report aims to outline all elements of tort of negligence
by auditor and the actions that can be taken against them for their negligence to detect fraud
in client company.
Discussion
Tort of Negligence
Framed was wholesaler of the supplies of office, who was engaged in selling all its
products to retailers all through out of NSW. The company was not able to earn profit rather
it was at break-even situation for last two years. The key issue was of the management of
cash flow and the other issue includes reasonable revenue and creeping up of the accounts
payable and receivables. The most recent audit was completed by the auditing firm, OEV and
they provided unmodified set of opinion. Within couple of the months of end of year, framed
limited went into the liquidation and they become incapable for paying their outstanding
debts. Framed liquidator then found major fraud and manipulation committed by Framed
sales representatives. These representatives were involved in entering the falsified sales for
achieving bonuses that they get from sales. The material statement was done on sales and
receivables. Therefore, all these manipulations and fraud was neglected by auditors and
negligence has been tort by them in detecting fraud, which was going on in the Framed Ltd
(Handoko & Widuri, 2016).