The audit of short-term investments can be a high-risk area for auditors. A case in Australia (AWA Ltd v. Daniels t/a Deloitte Haskins & Sells & Ors (1992) 10 ACLC 933) found the auditors negligent for failing to report weaknesses in the foreign exchange trading to an adequate level of management. The collapse of Barings Bank in Singapore also focused questions on whether adequate attention was paid to reviewing internal controls over foreign currency transactions. Consider, for example, the following extract:

The refusal of Coopers & Lybrand’s Singapore partnership to cooperate with the inquiry into the collapse of Barings Bank has left gaping holes in the explanation of the auditors’ role in the affair. The inquiry by the Board of Banking Supervision concluded that the collapse could be attributed to concealed and unauthorized trading by Nick Leeson, which the bank’s management and the external auditors and regulators failed to notice. Crucial from the auditors’ point of view is why they failed to notice the “absolute failure” of Barings’ internal controls. Some indication of the crisis was picked up by Barings’ internal auditors in 1994, but their recommendations were never implemented, and the external auditors subsequently ruled the company’s controls acceptable.

Required

a. For one of the above two cases mentioned, research the alleged or actual deficiencies of the work performed by the auditor.

b. What are specific issues of importance in performing an audit of short-term investments?