(a) Recently, there has been an alarming increase in lawsuits against auditors. Efforts have been taken by concerned parties on how to ensure such lawsuits are reduced.

Required:

i. Explain elements to be proven by third parties in order to succeed in an action for negligence against the auditor.

ii. Explain THREE (3) ways that can be taken by individual firms to reduce potential claims from such lawsuits.

(b) Each of the following involves a possible violation of MIA By-laws (On Professional Conduct and Ethics). For each situation, explain whether the MIA By-laws are violated or not. Justify your answer by stating a relevant MIA By-Law.

i. Lim is an accounting graduate with four years experience in audit field. During a recent taxation seminar, he distributed his business cards to potential clients. Besides his name and contact number, the business card also indicates the name of the firm he is attached to, his designation as a chartered accountant as well as particulars relating to his professional qualification.

ii. Wahid & Co, a public accounting firm based in Selangor has been offered to audit RingRing Sdn Bhd which is located in Ipoh, Perak. However, the partner of Wahid & Co. has declined the offer due to shortage of staff and distance. The partner introduced the prospective client to Tan & Co, another public accounting firm in Perak, who then accepted the appointment. For the referral, the partner of Wahid & Co. received RM5,000 as a commission.