Auditing Responsibilities: A Detailed Look at Care, Negligence & Duty

This report provides an analysis of key auditing aspects, including due care, contributory negligence, and duty of care, based on a provided scenario. It argues that the auditor, SBF, complied with due care requirements, as an independent expert deemed the client's system reliable at the time of the audit. The report identifies that FFA may be responsible for contributory negligence due to its outdated revenue recognition process. Lastly, it concludes that SBF does not owe a duty of care to McCarran Pastoral, as the system error occurred after the audit's completion. Desklib offers a wealth of solved assignments and past papers for students.

Running head: AUDITING
Auditing
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction................................................................................................................................2
Due Care.....................................................................................................................................2
Contributory Negligence............................................................................................................2
Duty of Care...............................................................................................................................3
Conclusion..................................................................................................................................3
References..................................................................................................................................4

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Introduction
The main aim of this report is the analysis of three major aspects of auditing such as
due care, contributory negligence and duty of care. This report sheds light on these factor by
considering the provided senate.
Due Care
The principles of professional competence and due care puts the obligation on the
auditors for maintaining skills and professional knowledge for ensuring the clients receive
competent professional services and to act diligently as per the applicable professional and
technical standards at the time of providing the professional services (apesb.org.au, 2019). As
per the provided scenario, the independent expert of SBF concluded that the system was
reliable as the changeover of the system was carried out correctly. It implies that there was
not any technical issue in the system at that time as the management of TRC was also
satisfied with the system. It means the auditor has applied his skills and knowledge correctly
in order to ensure that the clients receive the appropriate service (Ye & Simunic, 2013). The
error in the system was discovered in July 2019 after the completion of the audit of SBF. For
this reason, SBF does not have any responsibility in this.
Contributory Negligence
Contributory negligence is considered as a common law defence where a person or
company through their negligence contributes towards the harm they suffered (De Mot,
2013). It can be seen from the provided scenario that the revenue recognition method on sale
of cattle is questionable and 50% of revenue of FFA is from cattle sales. Since FFA has been
using the revenue recognition process for last ten years without any adjustments in the
process, it is possible that the revenue recognition process has become backdated as
compared to the present techniques; and this particular aspect has contributed towards doubts

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in this revenue recognition process. It implies that the negligence of FFA in changing and
adjusting the revenue recognition process has contribute towards the irrelevant revenue
recognition process of the firm. For this reason, FFA can be considered as guilty of
contributory negligence.
Duty of Care
Duty of care is considered as a crucial aspect in auditing and it indicates towards the
duty of the auditors in confirming the fact that the financial statements of the clients are
presented correctly and they reflect the company’s correct financial position (Humphrey &
Samsonova, 2014). It can be seen from the provided scenario that the audit of SBF ended on
30 June 2019 and the error in the system occurred after this period. It implies that SBF does
not have any reasonability towards the errors and frauds of the company occurred after the
completion of audit. Thus, it can be said that SBF does not owe McCarran Pastoral any duty
of care.
Conclusion
It can be seen from the above discussion that SBF well complied with the
requirements of due care while exercising the audit of FFA. In addition, FFA is responsible
for contributory negligence due to not changing and adjusting the revenue recognition
process. Lastly, SBF does not owe duty of care to McCarran Pastoral.

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References
Apesb.org.au. (2019). APES 110 Code of Ethics for Professional Accountants. Retrieved 29
March 2019, from
https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf
De Mot, J. (2013). Comparative versus contributory negligence: A comparison of the
litigation expenditures. International Review of Law and Economics, 33, 54-61.
Humphrey, C., & Samsonova, A. (2014). A crisis of identity? Juxtaposing auditor liability
and the value of audit. In Accounting and Regulation (pp. 111-131). Springer, New
York, NY.
Ye, M., & Simunic, D. A. (2013). The economics of setting auditing
standards. Contemporary Accounting Research, 30(3), 1191-1215.