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Chapter 29
Case study 1 – AHM
Discuss in detail all the issues raised by this case
The situation is similar to the Caparo case
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2)
xThere may be a real possibility of a successful claim here if it can be
established that the auditors failed to obtain sufficient appropriate
evidence to support their audit opinion.
xThe audit firm should review their audit work in the light of the new
information.
xThe fact they did little or no systems based work does not, of itself,
invalidate the audit. The planning documents should set out the audit
approach and strategy. If a risk based approach was being taken this
would have to be justified and properly documented
xThe absence of detailed documentation could be detrimental to the
auditor’s case
xThe audit firm must not, of course, make any additions or deletions to
the documentation on the audit file.
xThey may have required the directors to make representations. These
should be reviewed to discover whether or not some or all of them
were false. However this will not relieve the auditors of their
3)
This is a ‘Caparo’ style situation.
The key information to obtain from Sophie is
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xWas she aware of the interest of Massive plc in acquiring Pongo
at the point she signed the auditor’s report?
xHad she given any assurances to Massive concerning her
auditor’s report subsequent to signing it off? See ADT v Binder
Hamlyn
xIf she had given them any such undertaking had she properly
reviewed all her audit work before giving it to ensure that
everything had been properly conducted?
xDid her audit report contain any disclaimer ‘Bannerman’ type
wording?
xHad she accepted to Massive in any way that she owed a duty of
care to them ?
xWere there any problems with the audit of inventories at the
time of the audit?
xIf so how were they addressed? Did the audit file demonstrate
that the audit had been conducted in accordance with the ISAs?
If
xshe had conducted her audit properly given the circumstances
pertaining at the time of the audit and not with the benefit of
hindsight
xwas not aware of Massive’s interest in Pongo at the time of
signing the auditors’ report, and
xincorporated some Bannerman style wording in the audit report