Problem question: Ty is an auditor. Merrill is Ty's sister. Merrill is the Chief Executive Officer of Brighton Rock Ltd ('BR'). BR specialises in supplying helmets and other safety gear to the mining industry. Merrill wants to expand BR to supply its products to Africa. In order to raise capital to expand the business Merrill plans firstly to seek to obtain a loan from Narrunga Bank. Merrill also intends to issue new shares. Ty is appointed as the auditor of BR. Ty conducts the audit and is not very careful when completing the audit. Ty mistakenly states in his report that BR is making a profit of $20 million a year. This is incorrect. BR is in fact only making a profit of $12 million a year, but Ty incorrectly but by accident confuses a significant sale of mining equipment with the proceeds of the lease. Simone is a member of Ty's auditing team. Simone notices that there seems to be a small unexplained expense that is being made by Merrill every month. When Simone goes to Ty with this concern Ty tells Simone not to worry about it and that he will raise the issue with Merrill. Over time Ty forgets to do? Ty produces an audit report which shows that BR is making a profit of $20 million a year. This report is sent to members. It is also available to the public. On the basis of this report the Narrunga Bank loans $10 million to BR. The Narrunga Bank is convinced that BR will pay their debts. Abdul is looking to expand his investment portfolio. He has no shares in BR but has identified them as a possible company to invest in. In fact, he buys 10,000 shares in BR as a result of the good financial situation of the company stated in the audit report. Each share is valued at $90 when he buys them. Simone remains concerned about the financial irregularities she tried to raise with Ty. She mentions this to BR's financial department. The financial department looks into the irregular payments, and see Ty's mis-statement of the company's profit. They also find many large unexplained expenses made by Merrill. These are of a similar nature to the 'small' unexplained expense that Simone told Ty about. As a result, instead of turning an annual profit of $2 million, BR has actually been trading at a loss of $6 million a year for the last 3 years. If Ty had followed up on the small unexplained expense it is highly likely that he would have identified the large unexplained expenses. The financial department informs the directors of BR immediately. BR is now considered hopelessly insolvent. Despite selling off many of BR's assets, which they had taken security over, the Narrunga Bank is only able to realise $5 million of the $10 million loan. They have therefore lost at least $5 million. Abdul's shares are now worth $0. He has therefore lost $900,000. 1. Has Ty breached the auditor's duty of independence? 2. List the actions BR can bring against Ty due to his failure to exercise care and diligence. 3. Can the Narrunga Bank and/or Abdul bring an action against Ty due to his failure to exercise care and diligence?