Auditing and Assurance Report: FFA Case Study Analysis for ACC568

This report analyzes a case involving Far Faraway Pastoral Limited (FFA) and Samway Baker Fitzgerald (SBF), focusing on an audit of FFA's financial statements. The report examines whether SBF failed in its duty of care, if FFA was contributorily negligent, and if SBF owed a duty of care to McCarran Pastoral. The analysis considers issues such as material errors in inventory, negligent conduct, and the causal relationship between the auditor's actions and the losses suffered. The report concludes that SBF did not owe a duty of care to McCarran Pastoral and that FFA's auditor, not SBF, was primarily at fault. It also examines the auditor's defense, emphasizing the role of a "watchdog" rather than a "bloodhound". The report references relevant cases and professional standards, including APES 110 and various legal precedents, to support its conclusions.

Running Head: AUDITING AND ASSURANCE IN AUSTRALIA
AUDITING AND ASSURANCE IN AUSTRALIA
Name of the Student
Name of the University
Author Note

1AUDITING AND ASSURANCE IN AUSTRALIA
1 July 2019
Samway Baker Fitzgerald Liability to Far Faraway Pastoral Limited &
Shareholders
Executive Summary
This report is prepared for identifying if Far Faraway Pastoral Limited (FFA) is sued
against Samway baker Fitzgerald (SBF) for negligence against the loss. These
findings will indicate that FFL will unable to prove that loss was suffered due to the
negligence of SBF. In addition, FFA was responsible for contributory negligence and
lastly, it has been proved that SBF does not obligated for the duty of care to
McCarran Pastoral.

2AUDITING AND ASSURANCE IN AUSTRALIA
Table of Contents
Introduction...................................................................................................................3
Duty of Care..................................................................................................................3
Negligent conduct.........................................................................................................3
Loss suffered................................................................................................................4
Casual relationship.......................................................................................................4
Auditor defense.............................................................................................................4
Conclusion....................................................................................................................5
References...................................................................................................................7

3AUDITING AND ASSURANCE IN AUSTRALIA
Introduction
The aim of this assignment is the analysis on the change in the accounting
information system during the year 2018 has reported significant error in inventory at
the store of TRC that is misstated by the amount of $16.6m and net assets at the
same value. This has resulted in the withholding the payment by Mc Carran Pastoral
to FFA and the planning of FIFA to sue against SBF for negligence. Therefore, under
this report discussion will be based on the question whether SBF has failed in
exercising ‘due care’ in the audit of TRC, question if the FFA is guilty for contributory
negligence and whether duty of care to McCarran Pastoral is owed by SBF (Kaptein,
2015).
Duty of Care
In the APES 110 the section of 130.1 point out that the auditor’s duty is
attaining and maintaining the professional competence level as well as they should
undertake the work which they would have expectation for completing it with the
professional competence and due care which has to be in accordance with the
applicable professional as well as technical standards. SBF have the duty of care for
its clients FFA. As per AWA Ltd V Daniels ta Deloitte Haskins & Sells (1995) 16
ACSR 614 SBF is liable to FFA if the case is filed against FFA. Moreover, Skye
Martin who is senior auditor of FFA is not allowing Steve for reporting about the
material errors in the financial statements, also she is making bad comments on the
other auditors, hence, she comprises the integrity and due care. Therefore, in this
case fault is from FFA auditor’s side not from SBF auditor’s side (Alleyne, Haniffa &
Hudaib, 2016).

4AUDITING AND ASSURANCE IN AUSTRALIA
Negligent conduct
“Hedley Byrne & Co. Ltd v Heller and Partners Ltd (1963) 2 ALL ER 575” and
Scott Group Ltd v Mcfarlane (1978) 1 NZLR 553 case, it has been decided that the
audit Hence, FFA have to prove about the negligence of SBF in detecting the
revenue recognition method for the year end 30 June 2019 on the sale of cattle
because it was different from other years (Backof, Bowlin & Goodson, 2014).
Loss suffered
Case of Hedley Byrne & Co. Ltd v Heller and Partners Ltd (1963) 2 ALL ER
575 have recognised that, liability which is for the pure economic loss does not arise
from the contractual relationship, has presented the idea of “assumption of the
responsibility”. FFA have to prove that they have suffered losses. Shareholders can
suffer loss which results in dropping of share price. Hence, claim is to done by the
shareholders not FFA (Peter, 2014).
Casual relationship
Case of Esanda Finance Corp Peat Marwick Hungerfords(1997) 15 ACLC
483 has confirmed that the liability of auditors to third parties as the auditors does
not obliged for duty of care to the third parties. This appeal was dismissed with cost,
as there was no cause of action in the negligence for breach of the duty available to
the appellants. SBF due to have no office in the WA have organised expert who was
independent have bring the conclusion that the new system’s changeover was
carried out correctly and reliable. Hence, SBF was not liable for his duty. Neither
FFA have the duty of care for the auditor’s part of negligencer who is third party
(Augustine, 2014).

5AUDITING AND ASSURANCE IN AUSTRALIA
Auditor defense
According to “Kingston Cotton Mill (No 2) (1896) 2 Ch 279” which is the legal
judgement in favour of auditor of the company, which describes that their role is of
“watchdog” as compare to “bloodhounds” and hence, they are not liable for any
wrongdoings which they have no any reason to where suspect were taking place.
Hence, SBF is not liable for any misstatement done by FFA (Backof, 2015).
Conclusion
Hence, duty of care is not owed by SBF to McCarran pastoral, it is because,
why to pay for the wrong doings which they have not done. Here is the situation
which, strongly convey that, FFA’s accounting treatment is in question and their
auditor have done misstatement which is not ethical. They need to be asked about
the treatment of the revenue recognition on the sale of cattle and wrong practices.

6AUDITING AND ASSURANCE IN AUSTRALIA
References
Alleyne, P., Haniffa, R., & Hudaib, M. (2016). The construction of a whistle‐blowing
protocol for audit organisations: a four‐stage participatory
approach. International Journal of Auditing, 20(1), 72-86.
Augustine, O. E., Chijioke, M., Oba, E., & Jonathan, E. (2014). Audit Firm
Characteristics and Auditing Quality: The Nigerian Experience [J]. Research
Journal of Finance and Accounting, 5(6), 23-34.
Backof, A. G. (2015). The impact of audit evidence documentation on jurors'
negligence verdicts and damage awards. The Accounting Review, 90(6),
2177-2204.
Backof, A., Bowlin, K., & Goodson, B. (2014). The Impact of Proposed Changes to
the Content of the Audit Report on Jurors' Assessments of Auditor
Negligence. Available at SSRN, 2446057.
Kaptein, M. (2015). The effectiveness of ethics programs: The role of scope,
composition, and sequence. Journal of Business Ethics, 132(2), 415-431.
Peter, Z., Masoyi, A. D., Ernest, E. I., & Gabriel, A. O. (2014). Application of Forensic
Auditing in Reduding Fraud Cases in Nigeria Money Deposit Banks. Global
Journal of Management And Business Research.