Assignment Question ( 1) ( 10 Marks)
Impulse Pty Ltd (Impulse) is an entertainment system manufacturer that
was established in 2005. Your audit firm King & Queen have been the
auditor of Impulse since its formation. The audit report for the year ended
30 June 2012 was unqualified. Although Impulse had been suffering
liquidity problems with a drop in both debtors’ turnover and inventory
turnover, King & Queen did not consider that any additional audit work
was necessary in regard to the valuation of these assets. In August 2012,
Impulse obtained a large loan from a finance company, Easy Finance
Limited (EFL), to provide additional working capital. However, Impulse
continued to experience severe trading problems and was placed in
liquidation in December 2012.
King & Queen has been notified by EFL’s solicitors that they are taking
action against your firm based on the audit of the 30 June 2012 financial
report. EFL claim that the cause of Impulse’s failure related to the
inadequate provision for doubtful debts and a fall in the value of
inventories on hand, and that these problems were evident at 30 June
2012, but had not been adequately dealt with in the financial report due
to your negligence. They also claim that they would not have given the
loan to Impulse if the 2012 financial report had been qualified.
Required
a) Would King & Queen be liable to EFL? Provide specific case
references to support your answer.
b) Would your answer change if EFL had written to King & Queen
advising you that they intended to make a loan to Impulse and
were relying on the 2012 audited financial report to assist them in
making their decision?
Assignment
find the cost of your paper
Is this question part of your assignment?
Place order
Posted on May 2, 2016Author TutorCategories Question, Questions