In the following scenarios you are required to discuss the possibility of the auditors being guilty of negligence:

(a) Cedra Ltd a manufacturing company has been audited by Dove & Co.

for the last 14 years. It has recently been discovered that a massive fraud involving three of the directors of the company has been going on for the last ten years. The fraud basically involved the falsification of assets, in particular, inventories and trade receivables. The auditors have never attended the year end inventory count and only intermittently carried out a circularization of credit customers, the managing director always exercising what she called her right to request that certain credit customers were not circularized.

(b) Bibbington Ltd acquired Pyegreave Ltd in 2017, but had by the end of 2018 decided that it would be necessary to wind up the latter company.

At the time of the takeover it was known that Pyegreave Ltd was in financial difficulties and in need of a cash injection, indeed the notes to the financial statements contained a paragraph relating to issues concerning going concern. The financial statements were, however, not qualified. In these same financial statements the company, in respect of certain items, had ignored the accruals concept which is regarded as fundamental by accounting standards. These departures were not mentioned in the notes to the financial statements nor by the auditors in their report.

(c) The financial statements of Gage Ltd contained a material amount in respect of investments, being shares held in other companies. The auditors accepted as proof of the existence of these shares a certificate from the stockbrokers who held them. It was later found that the company did not in fact own any of the shares and that the certificate from the stockbrokers was fraudulent.