This report investigates the ethical and legal liabilities faced by Miller, Yates, and Howarth (MYH) arising from their audit of Morgan Fertilisers, particularly concerning a subcontractor's waste disposal practices and potential negligence. It utilizes the American Accounting Association ethical model to address ethical dilemmas, analyzing options such as informing Morgan Fertilisers about the subcontractor's issues. The report also assesses MYH's potential legal liability to Oasis, the new owners of Morgan Fertilisers, considering negligence in preparing the audit accounts. It examines relevant court rulings, including Caparo Industries Plc vs. Dickman & Others and Esanda Finance Corporation Ltd vs. Peat Marwick Hungerfords, to determine the extent of the auditor's duty of care, especially regarding third-party reliance on audit reports. The analysis explores the impact of negligence on auditors and the need for a duty of care, discussing factors like reasonable foreseeability and actual knowledge of users of audited accounts.
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