Question 3 (7 marks)

Periwinkle Ltd (Periwinkle) sells office equipment and supplies. You are the audit partner assigned to the audit of Periwinkle. You issued an unmodified audit report for the year ended 30 June 2020. In January 2021, three senior officials of the company were charged with fraudulent financial reporting and embezzling about $3 million. Your audit firm has been notified by the legal team of Periwinkle that they are taking legal action against your firm. They claim that you and your audit team members were negligent in conducting 2021 audit due to your failure to identify fraudulent activities of the employees of Periwinkle.

Required:

1. Outline FIVEmajor questions that must be addressed in determining whether you, as the auditor, have been negligent in performing the audit of Periwinkle. (5 marks)

1. Outline the major issues to be determined in deciding whether Periwinkle was guilty of contributory negligence. (2 marks)