1 Kalsom is a sophisticated investor. As such, she was initially a member of a small group that was going to participate in a private placement of RM 5 million of ordinary shares of Pertama Bhd. Numerous meetings were held between management and the investor group. Detailed financial and other information was supplied to the participants. On the eve of the completion, the placement was aborted when one major investor withdrew. Pertama Bhd then decided to offer RM 10 million of its ordinary shares to the public. Kalsom subscribed RM 500,000 of the public offering. Nine months later, Pertama Bhd's earnings dropped significantly, and as result, the shares dropped 20 per cent beneath the offer price. Kalsom has sold her shares at a loss of RM 100,000 and seeks to hold all parties who participated in the public offering liable, including Pertama Bhd's auditors, Tan, Maniam and Ishak. Although the audit was performed in conformity with Malaysian Approved Auditing Standards, there were some relatively minor misstatements. The financials statements of Pertama Bhs, which were part of the submission documents to the Regulatory Authorities, contained minor misleading facts. It is believed by both Pertama Bhd and the auditors that Kalsom's asserted claim is without merit. Required: Answer the following, giving reasons for any conclusions stated: a) If Kalsom sues the company and the auditors, what will be the basis for her claim? b) What are the probable defences that might be asserted by Tan, Maniam and Ishak in light of these facts? QUESTION 2 DISCUSS the reason for a rising demand for auditing services in a free-market economy. What evidence suggests that auditing would be demanded even if it were not required by government regulation