Audit @ Assurance

1. PA 603
AUDITING AND ASSURANCE
MEMBER’S GROUP :
QURATULAINI BT HASRI (10DAT11F2009)
SHARIFAH NUR AFIZA BT SYED AHMAD MUSTAFA
(10DAT11F2013)
NURAZARIAH BT RAHIMAN (10DAT11F2022)
NUR HUZAIFAH BT ZULKIFLI (10DAT11F2030)

2. 7.1 Understand the nature of audit
liabilities
7.1.1 Define the fraud
7.1.2 Differentiate between fraud and error

3. 7.1.1 Definition Fraud
• Refers to an intentional act by one or more individuals
among management, those charged with governance,
employees or third parties, involving use of deception
to obtain an unjust or illegal advantage
• Involve manipulation, falsification or alteration of
record or document; misappropriation of assets
• Fraud is most common in the buying or selling of
property, including real estate and intangible property
such as stock, bonds and copyright.
• Commonly understood as dishonesty calculated for
advantage. may be called a fraudA person who is
dishonesty

4. 7.1.2 Differentiate between Fraud and
Error
FRAUD ERROR
Refers to all grants, information or
opinion on the financial accounting
system by someone.
Referring to the offense by an inadvertent
act.
An intentional act to alter financial
information.
Unintentional act or without intention.
Use policy deliberately inaccurate. Mistake in the application of policies.
Altering or falsifying documents. Misstated note
Get rid of or eliminate the effects of the
transaction documents.
The facts are wrong meaning.
Example : have saving : record deal that
never happened.
Example : the number of wrongly
recorded in the accounts.

5. 7.2 Understand the audit legal liabilities
7.2.1 Define the legal liability
7.2.2 Identify legal acts that govern auditor’s liabilities
7.2.3 Discuss each type of liabilities :
a) Liability to client
b) Liability to third party
c) Fraud
7.2.4 Relate each type of liability with current
audit cases
7.2.5 Determine factors that help to minimize
the auditor liabilities

6. 7.2.1 DEFINITION LEGAL LIABILITY
• Auditor may be held liable to third parties under
statutory law
• Companies act 1965 and the securities common
act 1963
• Most prominent statutes affecting an auditor’s
legal liability
• Legal liability is a term applied to being legally
responsible for a situation, and is often
associated with a subcontract, especially if the
terms of that contract are not fulfilled.

7. IDENTIFY LEGAL ACT THAT GOVERN
AUDITOR’S LIABILITIES
• Many accounting and legal professionals
believe that a major cause of law suits against
CPA firms is financial statement users’ lack of
understanding of two concept :
* The difference between a
business failure and an audit failure
* The difference between an
audit failure and audit risk

8. 1) Business Failure
Business failure occurs when a business is
unable to repay its lenders or meet the
expectations of its investors because of
economic or business conditions, such as
recession, poor management decisions, or
unexpected competition in the industry
2) Audit Failure
Occurs when the auditors issues an incorrect
audit opinion because it failed to company with
the requirements of auditing standards.

9. 3) Audit Risk
Represents the possibility that the auditors
concludes after conducting an adequate audit that the
financial statements were fairly stated when in fact,
they were materially misstated

10. Types of Liabilities
1. Liabilities to Client
2. Liabilities to Third Parties
3. Fraud

11. 1. LIABILITY TO CLIENT
• The most common source of lawsuits against CA’s is
from client
• The suit vary widely, including such as failure to
complete a non audit engagement on the agreed-upon
date, inappropriate withdraw from an audit, failure to
discover and embezzlement (their or assets) and
breach of the confidentiality requirement of CA’s.
• A tort is a wrongful act other than breach of contract
for which civil action may be taken
• When an auditors fails to carry out contractual
arrangements with the clients, the auditor may be held
liable for breach of contract or negligence.

12. • The CA firm normally use on or a
combination of four defenses when there
are legal claims by clients
* Lack of duty to perform the service
* Non-negligent performance
* Contributory negligence
* Absence of causal connection

13. Case Related
A) Wilde ad othera Vs Cape and Dalgeish
Kes ini berlaku pd tahun 1897, di mana seorg
juruaudit gagal menemui penipuan disebabkan buku
simpanan tunai tidak diperiksa. Juruaudit tersebut cuba
membela dirinya dengan memberikan alasan bahawa
pengauditan tunai tidak termasuk dalam perjanjian.
Mahkamah tidak menerima alasan tersebut dan beliau
didapati bersalah kerana kecuaian.

14. B) Smith Vs Sheard
Kes ini berlaku pada 1906, di mana juruaudit
syarikat yang telah dilantik gagal menemui penipuan
akibat pemeriksaan yang tidak dibuat. Alasannya
adalah tidak terdapat perjanjian berkaitan perkara
tersebut jadi pemeriksaan tidak dibuat. Alasan ini
ditolak oleh mahkamah dan juruaudit
bertanggungjawab di atas kesalahannya.

15. 2. Liability to third Party
(Case Related)
A) Ultramares Vs Touche & Co.
Kes ini berlaku di New York pada tahun 1931.
Juruaudit yg dilantik utk mengaudit sebuah syarikat yg
mengimport dan menjual getah telah melaporkan
bahawa syarikat tersebut mempunyai kedudukan
kewangan yg kukuh tetapi sebenarnya adalah
sebaliknya. Berasaskan laporan yang diberikan, sebuah
syarikat kewangan telah memberikan pinjaman kpd
syarikat pengimport getah ini. Akhirnya, syarikat
kewangan gagal mengutip hutang dengan sepenuhnya.

16. B) Rush Factors Vs Levi
Pihak pelaintif telah menyuruh defendan seorang
juruaudit untuk memperoleh pinjaman daripadanya.
Penyata kewangan yg telah disahkan drp juruaudit
menunjukan bahawa syarikat tersebut mempunyai
kemampuan untuk bayar balik tetapi pada keadaan
sebenarnya tidak mampu. Rush Factors telah
mendakwa juruaudit bagi kerugian yg telah ditanggung
akibat bergantung kpd pandangan juruaudit yg salah
tafsir penyata kewangan. Mahkamah memberikan
keputusan kpd pihak plaintif.

17. 3. Fraud
( Case Related )
A) London and General Bank
Kes ini berlaku di England pada tahun 1895. Di dalam
kes ini, seorg juruaudit telah membuat laporan kpd seorg
pengarah dgn menyatakan bahawa sandaran yg diterima
berdasarkan wang yg diberi pinjam kpd syarikat lain tidak
memuaskan.
Walau bagaimanapun, laporan kpd pemegang syer
tidak menyatakan hal ini dengan jelas. Dengan ini, nilai yg
dinyatakan dalam kunci kira-kira adalah tinggi, tidak benar
dan saksama. Oleh itu, dividend yg diisytiharkan dan bayaran
dividend tersebut telah dikeluarkan drp modal.
Syarikat menghadapi kerugian yg besar akibat
juruaudit gagal menjalankan tugasnya. Keputusan telah
dibuat supaya juruaudit membayar ganti rugi kpd syarikat
tersebut.

18. B) Kingston Cotton Mill
Kes ini berlaku di England pada tahun1896. Dalam kes ini,
juruaudit telah menerima surat pengesahan stok drp pengurus yg
juga seorg pengarah syarikat dan ianya seorg yg dihormati. Tetapi
surat pengesahan menunjukan nilai stok lebih drp nilai sebenar.
Akhirnya, pembayaran dividend tersebut diambil drp modal.
Juruaudit telah didakwa atas kecuainya. Walau
bagaimanapun, juruaudit didapati tidak bersalah kerana
mengembalikan jumlah stok bulanan tugasnya. Sudah memadai
baginya utk bertindak berdasarkan surat pengesahan drp seorg yg
dipercayai kejujurannya.

19. In Malaysia, legal action may be brought against auditors for violating
either Securities Commission Act 2003 or Company Act 1965
• Under Companies Act 1965
– Section 46 – an auditor as an expert who authorities and cause the
issue of the prospectus is liable to pay compensation to person
who purchases share or debentures on the faith of the prospectus
for any loss sustained by reason of untrue statements or willful
non-disclosure of any mater which is material
• Under Securities Commission Act 2003
– Section 57 – any third party who purchased securities described in
the registration statement may sure the auditor for material
misrepresentations or omissions in audited financial statements
included in the registration statement

20. FACTOR THAT HELP TO MINIMIZE THE
AUDITOR LIABILITIES
• Standard and rule setting
- The respective accounting bodies and oversight boards
must constantly set standard and revise them to meet
the changing needs of auditing
• Oppose lawsuits
- CA firms must continues to oppose unwarranted
lawsuits even if in the short run the costs of
winning are greater than the costs of settling
• Education of users
- Accounting bodies, leaders of CA firms and educators
should educate investors and other who read financial
statements as to the meaning of an auditor’s opinion
and to the extent and nature of the auditor’s work

21. • Sanction members for imprper conduct and
performance
- A profession must be able to police its own
membership
• Engagement leaders should deliver and discuss
engagement letters
- Engagement letters are contracts, the
enforceability of which depends on both
parties understanding the contents
• Tailor engagement practice aids to meet the
needs of clients
- Professional judgment is now required for
both audits and reviews

22. THANK YOU