Holmes Institute HI6026: Auditors and Legal Liability Case Study

This report examines the legal liability of auditors, focusing on a case involving Deloitte and Livent. It details the key events, parties responsible, and damages imposed, highlighting the breach of duty of care and professional negligence. The report investigates relevant auditing and accounting issues, such as the need for thorough examination and accurate information representation. It identifies root causes like market pressure and organizational culture, along with problems such as false statements. Recommendations include stricter adherence to regulations, thorough document collection, and comprehensive risk assessments. The report concludes by emphasizing the crucial role of audit, assurance, and compliance services in adding value to businesses and ensuring accurate financial reporting.

Audit,
Assurance and
Compliance-
Auditors and
Legal Liability

Table Of Content
 Introduction
 Case scenario
 Damages and penalties
 Relevant issues and penalties
 Root causes of the penalties
 Problem, mistakes and misrepresentation
 Recommendation
 Conclusion
 References

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.

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.

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.

– 3) Investigate and explain the relevant issues in Auditing and
Accounting raised by the case.
 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.

4) The root-cause of the issues.
 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.
 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.

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 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.

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.

6) Provide recommendations and possible improvements to solve
the issue.
 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.
 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.

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Recommendation on Audit strategy:
 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.

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.