You have been the auditor of Data Ltd for two years. Your auditor’s report for Data...

You have been the auditor of Data Ltd for two years. Your auditor’s report for Data for the year ended 30 June 2018 was unmodified, indicating that in your opinion the financial report gave a true and fair view. In August 2018, Data obtained a large loan from Better Bank Ltd, to provide additional working capital. Subsequently Data suffered severe trading difficulties and was placed into liquidation in late December 2018, with insufficient funds to repay the loan to Better Bank.

Required: Outline a defense for your audit firm to any legal action taken by Better Bank to recover its loss. (10 marks, maximum 600 words)

Expert Solution

As per the Standards of Auditing , The auditor has to express his opinion whether the Financial statement gives a True & Fair view. In order to express his opinion the auditor has to obtain a Reasonable Assurance about the financial statements are free from any Material Misstatement and complied with laws and regulations.
Auditing of Financial statement "Does not Relieve Management from its Responsibilities" & auditing Does not assure the future viability of the company.

In the given case, Data ltd obtain a large loan from Better bank limited for fulfilling it's additional working capital requirements. Subsequently Data limited suffered a severe trading difficulties & Data limited even not able to repay it's dues on time and the company placed into the liquidation process. This clearly shows that the economic difficulties arises after issuing the Audit report & at that time Going concern assumption of the Data limited is clearly visible.

Conclusion In view of the above , we can say that the Better bank does not have any legal action to recover it's loss from the Audit firm.

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ekkarill92 answered 2 years ago

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