Assignment Topic – Auditors and Legal Liability
Read the following extract from the ACCA (the Association of Chartered Certified Accountants)
website, which is the global body for professional accountants, as stated:
“Over the past two decades the bill for litigation settlements of Big Four audit firms alone has run
into billions of dollars. Examples include Deloitte’s 2005 settlement of $250m regarding its audit of
insurance company Fortress Re and PwC’s $229m settlement in the lawsuit brought by the
shareholders of audit client Tyco in 2007.”
“Auditor liability is increasingly concerning, both in terms of audit quality and the reputation of the
profession but also in terms of the cost to the industry and the barriers this creates to competition
within the audit market.” (Source: www.accaglobal.com)
Required
Given the importance of professional liability to auditors and the negative publicity this creates for
the profession as a whole, research a recent case (Post 2000) where an auditor/audit firm was sued
for professional negligence. Students may research cases from the UK, USA, NZ or Canada in addition
to Australian cases.
With reference to the facts of the selected case, the significant Auditing and Accounting issues and
the final judgement handed down in your selected case:
• Provide a brief description of the key events and the factual issues behind the case
• Explain the culpability or which parties were deemed responsible and why. Outline the
damages imposed or the penalties and consider whether they were appropriate.
• investigate and explain the relevant issues in Auditing and Accounting raised by the case,
• The root-cause of the issues such as; market pressure, organisational culture, fraud etc.
• any problems, mistakes or misrepresentations made by the defendants, which contributed to
the adverse judgement and the awarding of damages,
• Finally, provide recommendations and possible improvements to:
o the Audit Strategy,
o the Audit Program,
o Other effective measures;
which would prevent the recurrence of the same litigation in the future and maintain
the professional reputation of auditors

1. The data below shows the life expectancy of men and women in different countries:

LifeExpMale

LifeExpFemale

Argentina

74

67

Bangladesh

53

54

Brazil

68

62

Canada

80

73

China

72

68

Colombia

74

68

Egypt

61

60

Ethiopia

53

50

France

82

74

Germany

79

73

India

58

57

Indonesia

63

59

Iran

65

64

Italy

82

75

Japan

82

76

Kenya

63

59

Korea.North

73

67

Korea.South

73

67

Mexico

76

68

Morocco

66

63

Burma

56

53

Pakistan

57

56

Peru

67

62

Philippines

67

62

Poland

77

69

Romania

75

69

Russia

74

64

South.Africa

67

61

Spain

82

75

Sudan

54

52

Taiwan

78

72

Tanzania

55

50

Thailand

71

66

Turkey

72

68

Ukraine

75

66

UK

79

73

USA

79

72

Venezuela

78

71

Vietnam

67

63

Zaire

56

52

a. what test should you use to test the two data sets (male and female life expectancy) for normality and why? (2 points)

b. Run that test on both variables.   Report the results below (2 points).  

3. What do you conclude in each case. Explain! (2 points)

4. Should you use a Pearson’s or a Spearman’s Rank Correlation for this data? Why? (2 points)

e. Calculate the correlation coefficient using SPSS. What is the value of r for this data set? (2 points)

6. What do you conclude about the type of correlation (positive / negative, significant / non-significant)? Explain using information from the SPSS output (3 points)

Assignment Topic – Auditors and Legal Liability Read the following extract from the ACCA (the Association of Chartered Certified Accountants) website, which is the global body for professional accountants, as stated: “Over the past two decades, the bill for litigation settlements of Big Four audit firms alone has run into billions of dollars. Examples include Deloitte’s 2005 settlement of $250m regarding its audit of insurance company Fortress Re and PwC’s $229m settlement in the lawsuit brought by the shareholders of audit client Tyco in 2007.” “Auditor liability is increasingly concerning, both in terms of audit quality and the reputation of the profession but also in terms of the cost to the industry and the barriers this creates to competition within the audit market.” (Source: www.accaglobal.com) Required Given the importance of professional liability to auditors and the negative publicity this creates for the profession as a whole, research a recent case (Post 2000) where an auditor/audit firm was sued for professional negligence. Students may research cases from the UK, USA, NZ, or Canada in addition to Australian cases. Concerning the facts of the selected case, the significant Auditing and Accounting issues, and the final judgment handed down in your selected case: • Provide a brief description of the key events and the factual issues behind the case • Explain the culpability or which parties were deemed responsible and why. Outline the damages imposed or the penalties and consider whether they were appropriate. • investigate and explain the relevant issues in Auditing and Accounting raised by the case, • The root-cause of the issues such as; market pressure, organizational culture, fraud, etc. • any problems, mistakes, or misrepresentations made by the defendants, which contributed to the adverse judgment and the awarding of damages, • Finally, provide recommendations and possible improvements to: o the Audit Strategy, o the Audit Program, o Other effective measures; which would prevent the recurrence of the same litigation in the future and maintain the professional reputation of auditors.

Crank Ltd

Crank has been in business since the 1920’s and have three locations in the UK. Their Head Office and main manufacturing site is in Leicester. This site makes complex tubular assemblies for defence organisations, oil and gas and transportation. There is a site at Southampton making tubular shafts for golf clubs, and a site in Glasgow manufacturing aerospace Duct assemblies up to 8″ diameter.

The procurement organisation is currently decentralised. At Leicester, there is a Purchasing Manager, whereas at Southampton and Glasgow, each site has a Chief Buyer in charge of small procurement teams. There is a new Chief Executive of Crank who fervently believes that he needs a new approach for the Group in the way procurement is structured. Over the past month, he has, quietly, been obtaining some salient facts.

The more important ones are

• Each site operates as a ‘Profit Centre’ and the Site Director has to deliver a targeted Return on Capital Employed;

• There are no Group purchase contracts;

• Five major purchases account for 61% of total Group expenditure – they are all raw material including different specifications of tubing;

• There are more than 40 suppliers for the five major purchases;

• No formal tendering has taken place, on any site, for more than two years;

• Capital equipment is purchased by the Group Chief Engineer;

• The company has embraced modern logistics practices including JIT and OTIF (On Time In Full);

• There is no savings plan for purchasing;

• The purchasing teams do not liaise.

The Chief Executive intends to consider an alternative purchasing structure that can deliver benefits for the Group and each operational site. On the basis of your knowledge and the salient facts above what advice could you give him?

Tasks

(c) What alternative structures could be considered?

(d) What are the potential obstacles to change?

(e) What business benefits could accrue from a changed purchasing structure?

1. Based on the following set of equations,

(1) AD=Y=Y*

(2) AD = C + G₀ + I

(3) C = C₀ + c1* YDIS

(4) Y^DIS = Y-T

(5) T=T₀ + tY

(6) I = I0 –er

0 <c1<1

0 <t<1

e>0

a)         Derive AD curve

b)         Draw AD curve

c)         Analyze, what will happen, if r (real interest rate) increases.

d)         Interpret coefficient e. Do you expect the value of this coefficient will be higher in the UK or Senegal?

e)         Based on point a), solve the equation for r variable.

f)         Based on point e), draw the function r = f(Y) (hint: r should be on the vertical axis, Y should be on the horizontal axis).

2. The real demand for money (Md = Md (nominal)/P) is expressed as a linear function:

(1) Md = kY-hr

(2) Ms = Md

a)         Explain the sign of coefficients k and h. What types of money demand do they refer to?

b)         Explain why there is no equation for the money supply.

c)         Using equation (1), express i as the function of Y (simply solve it for r variable).

d)         Draw the function obtained in point (c) on the same graph as in point 1.f).

3. Based on the graph you draw in point d), analyze the effect of the following events on the economy. Make sure to explain everything step-by-step.

EXAMPLE a) The central bank increases the money supply.

Ms increases => interest rate decreases => investment increases =>Y increases

On the graph: LM shifts to the right; at the new equilibrium point, Y increases, interest rate decreases.

b) The government increases taxes.

c) The government increases government spending.

d) MPC increases.

e) the tax rate decreases.

Crank Ltd

Crank has been in business since the 1920’s and have three locations in the UK. Their Head Office and main manufacturing site is in Leicester. This site makes complex tubular assemblies for defence organisations, oil and gas and transportation. There is a site at Southampton making tubular shafts for golf clubs, and a site in Glasgow manufacturing aerospace Duct assemblies up to 8″ diameter.

The procurement organisation is currently decentralised. At Leicester, there is a Purchasing Manager, whereas at Southampton and Glasgow, each site has a Chief Buyer in charge of small procurement teams. There is a new Chief Executive of Crank who fervently believes that he needs a new approach for the Group in the way procurement is structured. Over the past month, he has, quietly, been obtaining some salient facts.

The more important ones are

• Each site operates as a ‘Profit Centre’ and the Site Director has to deliver a targeted Return on Capital Employed;

• There are no Group purchase contracts;

• Five major purchases account for 61% of total Group expenditure – they are all raw material including different specifications of tubing;

• There are more than 40 suppliers for the five major purchases;

• No formal tendering has taken place, on any site, for more than two years;

• Capital equipment is purchased by the Group Chief Engineer;

• The company has embraced modern logistics practices including JIT and OTIF (On Time In Full);

• There is no savings plan for purchasing;

• The purchasing teams do not liaise.

The Chief Executive intends to consider an alternative purchasing structure that can deliver benefits for the Group and each operational site. On the basis of your knowledge and the salient facts above what advice could you give him?

Tasks

(c) What alternative structures could be considered?

(d) What are the potential obstacles to change?

(e) What business benefits could accrue from a changed purchasing structure?

Crank Ltd Crank has been in business since the 1920’s and have three locations in the UK. Their Head Office and main manufacturing site is in Leicester. This site makes complex tubular assemblies for defence organisations, oil and gas and transportation. There is a site at Southampton making tubular shafts for golf clubs, and a site in Glasgow manufacturing aerospace Duct assemblies up to 8″ diameter. The procurement organisation is currently decentralised. At Leicester, there is a Purchasing Manager, whereas at Southampton and Glasgow, each site has a Chief Buyer in charge of small procurement teams. There is a new Chief Executive of Crank who fervently believes that he needs a new approach for the Group in the way procurement is structured. Over the past month, he has, quietly, been obtaining some salient facts.

The more important ones are

• Each site operates as a ‘Profit Centre’ and the Site Director has to deliver a targeted Return on Capital Employed;

• There are no Group purchase contracts;

• Five major purchases account for 61% of total Group expenditure – they are all raw material including different specifications of tubing;

• There are more than 40 suppliers for the five major purchases; • No formal tendering has taken place, on any site, for more than two years;

• Capital equipment is purchased by the Group Chief Engineer;

• The company has embraced modern logistics practices including JIT and OTIF (On Time In Full);

• There is no savings plan for purchasing;

• The purchasing teams do not liaise.

The Chief Executive intends to consider an alternative purchasing structure that can deliver benefits for the Group and each operational site. On the basis of your knowledge and the salient facts above what advice could you give him?

Tasks

(c) What alternative structures could be considered?

(d) What are the potential obstacles to change?

(e) What business benefits could accrue from a changed purchasing structure?

Crank Ltd Crank has been in business since the 1920’s and have three locations in the UK. Their Head Office and main manufacturing site is in Leicester. This site makes complex tubular assemblies for defence organisations, oil and gas and transportation. There is a site at Southampton making tubular shafts for golf clubs, and a site in Glasgow manufacturing aerospace Duct assemblies up to 8″ diameter. The procurement organisation is currently decentralised. At Leicester, there is a Purchasing Manager, whereas at Southampton and Glasgow, each site has a Chief Buyer in charge of small procurement teams. There is a new Chief Executive of Crank who fervently believes that he needs a new approach for the Group in the way procurement is structured. Over the past month, he has, quietly, been obtaining some salient facts.

The more important ones are

• Each site operates as a ‘Profit Centre’ and the Site Director has to deliver a targeted Return on Capital Employed;

• There are no Group purchase contracts;

• Five major purchases account for 61% of total Group expenditure – they are all raw material including different specifications of tubing;

• There are more than 40 suppliers for the five major purchases; • No formal tendering has taken place, on any site, for more than two years;

• Capital equipment is purchased by the Group Chief Engineer;

• The company has embraced modern logistics practices including JIT and OTIF (On Time In Full);

• There is no savings plan for purchasing;

• The purchasing teams do not liaise.

The Chief Executive intends to consider an alternative purchasing structure that can deliver benefits for the Group and each operational site. On the basis of your knowledge and the salient facts above what advice could you give him?

Tasks

(c) What alternative structures could be considered?

(d) What are the potential obstacles to change?

(e) What business benefits could accrue from a changed purchasing structure?

Crank Ltd Crank has been in business since the 1920’s and have three locations in the UK. Their Head Office and main manufacturing site is in Leicester. This site makes complex tubular assemblies for defence organisations, oil and gas and transportation. There is a site at Southampton making tubular shafts for golf clubs, and a site in Glasgow manufacturing aerospace Duct assemblies up to 8″ diameter. The procurement organisation is currently decentralised. At Leicester, there is a Purchasing Manager, whereas at Southampton and Glasgow, each site has a Chief Buyer in charge of small procurement teams. There is a new Chief Executive of Crank who fervently believes that he needs a new approach for the Group in the way procurement is structured. Over the past month, he has, quietly, been obtaining some salient facts.

The more important ones are

• Each site operates as a ‘Profit Centre’ and the Site Director has to deliver a targeted Return on Capital Employed;

• There are no Group purchase contracts;

• Five major purchases account for 61% of total Group expenditure – they are all raw material including different specifications of tubing;

• There are more than 40 suppliers for the five major purchases; • No formal tendering has taken place, on any site, for more than two years;

• Capital equipment is purchased by the Group Chief Engineer;

• The company has embraced modern logistics practices including JIT and OTIF (On Time In Full);

• There is no savings plan for purchasing;

• The purchasing teams do not liaise.

The Chief Executive intends to consider an alternative purchasing structure that can deliver benefits for the Group and each operational site. On the basis of your knowledge and the salient facts above what advice could you give him?

Tasks

(c) What alternative structures could be considered?

(d) What are the potential obstacles to change?

(e) What business benefits could accrue from a changed purchasing structure?