Review Question RQ 2.18 Review Question RQ 2.22 Professional Application Question PQ 2.25 Plus Supplementary Questions SQ2.1 ,SQ2.2 , SQ2.3 SQ2.1 Determining an auditor's legal liability to a third party Cheddar Ltd was a large cheese products manufacturer that was considered a prime takeover target. Johnson and Associates completed the annual audit for zoxa and issued an unmodified auditors report. Shortly afterwards Cheddar Ltd was taken over by Tasty Ltd, which used the audited financial report as the basis of takeover. After the takeover was completed Tasty Ltd found that the inventory of Cheddar was materially overstated. Johnson & Associates has relied on management representations about the quality of the cheese products. In fact, 20 per cent of cheese were adversely affected by fungus that rendered them worthless. In addition, Johnson and Associates only attended the Melbourne stocktake, as it accounted 65 percent of the stock. No work was completed on interstate locations. However, subsequent investigation showed significant shortage in these locations. Required: Explain whether Johnson & Associates is liable to Tasty Ltd for damages under the tort of negligence. SQ2.2 Big Boss and Associates (Big Boss) is a large audit firm with clients located around inner NSW. During March 2019, Big Boss was successful in obtaining a new client, Clear Blue Diagnostics ltd (CBDL), which is one of the Australia's leading providers of diagnostic imaging services and owns 30 diagnostic clinics across Australia. Prior to the appointment of Big Boss as the Auditor of CBDL for the financial year ended 30 June 2019. some preliminary analysis identified the following information: 0 Jonny Depp, one of the assistants at Big Boss intended top part of the 30 June 2019 audit team, own shares in CBDL. Jonny's interest is not material to him. ' Big Boss was previously engaged by CBDL to value its intellectual property. The consolidated statement of financial position as at 30th June 2019 includes intangibles assets of $25 million