5) Four Months after the audit firm of Dewey, Cheatem, & Howe issued an Unqualified opinion...

5) Four Months after the audit firm of Dewey, Cheatem, & Howe issued an Unqualified
opinion that the F/S of Crook Puppy Investments (CPI) Ltd (an investment form
registered with ASIC) were True and Fair, the Australian Federal Police (AFP) raided
the offices of CPI, found that CPI had been engaged in money laundering for two Bikie
Gangs, seized CPI’s resources as the proceeds of crime, and shut the firm down. Shortly
there-after, CPI declared bankruptcy and was able to payout only 20¢ on the dollar of
creditor claims. The creditors of CPI are planning to sue Dewey, Cheatem, & Howe.
Required:
a) Should the creditors sue under contract law or tort law? (Explain).
b) What is a privity letter and how would your answer to question 5a change if
Dewey, Cheatem, & Howe had issued one of the major creditors a privity letter?
c) What matters must the creditors prove before their claim against Dewey, Cheatem,
& Howe can succeed?

Solutions

Expert Solution

Solution:

5) a) Under the contract law if any agreement is breach between the contract parties, in that case the affected contract parties can sue against the other contract party. In the instant case the creditors of CPI want to sue the auditor. If the auditor not perform his duty properly and due diligence is not complying by the auditor only in that case creditors can sue against the auditor.

b) Privity letter is the third party confirmation letter obtain by the auditors from the third party. The matters on which auditors require the expert opinion and bound to rely on the external parties, in that case the auditor should obtain privity letter. If the auditor obtains the same from the third party, then the auditor is not guilty and the creditors cannot sue against the auditor.

c) Before the claim of the creditors against the auditor they must prove that auditor is not performing its duty with proper due diligence and the respective matter is known by the auditor and they did not consider the same and suppress the fact in the audit report and issue unqualified report to state that the function of the financial statement is true and fair.

References:

Posner, R. A. (2014). Economic analysis of law. Wolters Kluwer Law & Business.

Sangwan, S. (2016). Real Estate: The 5 Must-Haves for Consultants Seeking Reliance Letters from Other Consultants.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Mr. Howe, a Partner of the CPA firm Dewey, Cheatem & Howe (DC&H), after reviewing an...

Mr. Howe, a Partner of the CPA firm Dewey, Cheatem & Howe (DC&H), after reviewing an audit of “GUBER EATS” by DC&H has become concerned that GUBER EATS is not paying the National minimum wage of $19.49/hr. When he talked to the manager of GUBER EATS, Mr. Howe was informed that this was not a minimum-wage issue because the international students delivering for GUBER EATS are independent contractors (e.g. they set up companies and registered for ABNs). Also, the $16.50/hr...

Your broker, the leading sales generator at the firm Dewey, Cheatem and Howe, calls you with...

Your broker, the leading sales generator at the firm Dewey, Cheatem and Howe, calls you with an investment opportunity. If you send him $2000 today, he will send back to you $1050 a year from now, and $1300 a year after that. You require a 12% annual return. Based on the present value of these future cash flows, is this a good investment? Yes No

1) Total marks: 10 marks Mr Howe a junior partner of CPA fir, Dewey, CHeatem and...

1) Total marks: 10 marks Mr Howe a junior partner of CPA fir, Dewey, CHeatem and Howe (DCH) is very excited about the opprtunities created by fair value relvaluation of non current assets. hr believes that there is an enormous opportunities for large firms to increase their book profits via the gains from such revaluations. Required: Mr Tu Dewie has asked you to review the AASB rules on the fair market revaluation of non current assets and to assess what...

3) Mr Dewy, of the CPA firm Dewy, Cheatem, & Howe (DCH), has told his audit...

3) Mr Dewy, of the CPA firm Dewy, Cheatem, & Howe (DCH), has told his audit juniors that internal auditors are fellow professionals and that, as such, they and their audit work can always be a trusted. Required: a) Is Mr. Dewy correct in the above assertion? b) What factors must the external auditor be satisfied with, if s/he is to rely on the work of the internal auditor?

Katrina, CPA, performed an audit on the Willimantic Corporation and issued an unqualified opinion. Katrina performed...

Katrina, CPA, performed an audit on the Willimantic Corporation and issued an unqualified opinion. Katrina performed the audit with due professional care and in accordance with generally accepted auditing standards (GAAS). Two months after Katrina issued the audit report, she discovers on the news that the CEO of Willimantic Corporation, Henry, had been stealing small amounts of inventory. The amount, however, is immaterial compared to the overall inventory of the corporation. Katrina soon receives a call from Willimantic Corporation 's...

Dowe Cheatem & Howe, a law firm, started 2017 with accounts receivable of $60,000 and an...

Dowe Cheatem & Howe, a law firm, started 2017 with accounts receivable of $60,000 and an allowance for uncollectible accounts of $5,000. The 2017 service revenue on account was $400,000, and cash collections on account totalled $410,000. During 2017, Dowe Cheatem & Howe wrote off uncollectible accounts receivable of $7,000. At December 31, 2017, the aging-of-receivables method indicated that Dowe Cheatem & Howe will not collect $10,000 of its accounts receivable. Journalize Dowe Cheatem & Howe (a) service revenue, (b)...

Simean & Co, a firm of CPA’s, issued an unqualified audit report for its client, Xing...

Simean & Co, a firm of CPA’s, issued an unqualified audit report for its client, Xing Manufacturing Corporation, a footwear manufacturer in Asia. Xing Manufacturing, listed its head office in Toronto, Ontario, and its shares were traded on a Canadian Stock Exchange. Simean & Co. knew the company was in the process of refinancing a significant bank loan coming due, and the bank was anxious to see the year end results. After an unqualified audit report was issued, the regulator...

Maria is a Paralegal at Dewey, Cheatham & Howe, a law firm in Arizona. Information about...

Maria is a Paralegal at Dewey, Cheatham & Howe, a law firm in Arizona. Information about her 2018 income and expenses is as follows: Income received Salary $150,000 Taxes withheld from Salary: Federal Income tax $30,000 State Income Tax 9,000 Social Security Tax 7,961 Medicare Tax 2,175 Interest income from bank 6,000 Dividend income from U.S. Stocks 4,000 Short-Term Capital Gain 2,000 Long-Term Capital Gain 3,000 State income tax refund from last year 500 Expenses Paid: Unreimbursed dental and eye-care costs 1,800 Property taxes on her...

What does it mean standard unqualified opinion? How many parts of standard unqualified audit report and...

What does it mean standard unqualified opinion? How many parts of standard unqualified audit report and explain each part?

5. The management of Dewey, Cheatham & Howe, a private hospital is considering automating some back...

5. The management of Dewey, Cheatham & Howe, a private hospital is considering automating some back office functions. This would replace five personnel that currently cover three shifts per day, 365 days per year. Each person earns $35,000 per year. Company-paid benefits and overhead are 45% of wages. Money costs (use this as MARR) 8%. Combined federal and state taxes total 40%. Annual property taxes and maintenance are 2.5% and 4 % of the investment cost, respectively. Depreciation is 15-year...

Subjects