Holmes Institute: HI6026 Auditor Liability and Legal Responsibility

This report analyzes the case of Ryan Wealth Holdings Pty Ltd vs Baumgartner, focusing on auditor liability in the context of a Self Managed Superannuation Fund (SMSF) audit. The report examines the facts of the case, including investment issues and lack of sufficient evidence, which led to significant financial damages. It identifies the root causes, such as the auditor's failure to exercise reasonable care and diligence, and the lack of professional judgment in assessing investments. The report outlines reporting requirements from auditing standards and the auditor's professional, legal, and ethical responsibilities. It discusses audit planning procedures, internal control checks, and solutions to conflicts, including the importance of established internal controls. The report provides audit procedures for transactions and balances, including confirmation of investments, and recommends audit strategies and procedures to mitigate risks. Finally, it emphasizes the importance of risk mitigation in protecting assets, improving efficiency, and ensuring financial reliability, concluding that audit failures can result from various pressures. The report is based on the assignment for HI6026 Audit, Assurance and Compliance.

AUDITORS AND LEGAL
LIABILITY

INTRODUCTION
 Ryan Wealth Holdings Pty Ltd vs
Baumgartner
 audit of a Self Managed Superannuation Fund
(SMSF) where the auditor is found liable for
the losses (Tax Talks, 2017)
 audit of the SMSF was undertaken for the
years 2007 to 2009

FACTS OF THE CASE
Ryan Holdings Retirement Fund
 trustees made investments in the form of
Loans to entities in which adviser has
personal interest
 auditor was not provided with sufficient
appropriate evidence
 investments were classified under the head
‘Mortgage Loans’ which was not a mortgage
loan.
 quantified the damages $2,260,140

ROOT CAUSES AND PERTINENT ISSUES OF
THE CASE
 the auditor failed to exercise reasonable care
and diligence
 that the investments reported were at the
lower of cost or market value.
 Professional judgment not exercised in
assessing the reasonableness of the figures
of Investments

REPORTING REQUIREMENTS OF THE
AUDITING STANDARDS
 Auditor to perform the financial audit and
frame an opinion
 the financial statements should give a fair
representation of the financial position of the
fund and its operations (Arens, Best, Shailer
& Loebbecke, 2013)
 the auditor has to obtain proper details
evidence on the assets and liabilities of the
fund

AUDITOR’S PROFESSIONAL, LEGAL
AND ETHICAL RESPONSIBILITIES
 Audit failure - auditor provides an
unqualified opinion on the financial
statements that have material
discrepancy(Cappelleto, 2010)
 The auditor should be objective in his
approach
 Relationships or audits that might pose a
threat to his independence should be
avoided.

UNDERSTANDING AUDIT PLANNING
PROCEDURES
 Obtaining knowledge of the business
 Evaluation of financial transactions and
account balances (Mock et. al, 2013)
 Internal control check (Moroney & Trotman,
2016)
Solution to the conflict
 Relevant facts
 Fundamental principles involved in the
respective matter
 Established Internal controls (Ghandar &
Tsahuridu, 2013)
 Flaws in the internal controls

AUDIT PROCEDURES FOR TRANSACTIONS
AND BALANCES
 complying status of the SMSF in the prior
years
 current status of the SMSF – accumulation
stage
 Nature and size of business
 potential impact of any previously known
compliance issues

CONFIRMATION OF INVESTMENTS HAS TO BE
OBTAINED AT THE YEAR-END.
 audit evidence should be obtained about the
amounts disclosed in the financial
statements
 fair assessment of the risks of material
misstatements in the reports (Geoffrey,
Joleen K& David, 2016)

RECOMMENDATIONS TO AUDIT STRATEGY AND
PROCEDURES
SMSFs can be managed
 Registry and Custody
 Assets and Property management and
Investment advisory
 SMSF accounting and administration
 SMSF member administration

THE AUDIT STRATEGY
 Have the trustees formulated an investment
strategy
 Are compliance done with the investment
restrictions?
 Are the trustees adhering to the contribution
and benefits payment standards?
 Are the trustees carrying out the
administrative obligations

MITIGATION AGAINST PROFESSIONAL AND
REPUTATIONAL DAMAGE
 Audit is exposed to a few risky areas
 Auditor needs to plan to plan to mitigate the
same (Mock et.al, 2013)
 If the risk of material misstatement is high -
the detection risk needs to be set a low level
 When detection risk reduces - more
substantive procedures (Goodstein, 2011)