You are the partner in charge of the audit division in your accountancy firm AAA Accountants. In January 2019 you were engaged by Oz Rock Constructions Ltd (ORC) to provide an audit report to be used solely for the purposes of loan negotiation with East Bank of Australia Ltd (East Bank). Whilst auditing ORCs company records of its shareholdings you noticed shares held by a Mrs Smith. The address of that shareholder is the same address of the Senior Partner in your accountancy firm and Miss Smith is the wife of that Senior Partner. East Bank reviewed the audited financial statements and refused to lend further funds to ORC. ORC then went to Easy Money Bank Pty Ltd (Easy Money) and obtained a $10 million loan from Easy Money. Six months later ORC went into receivership and defaulted on its loan. Easy Money discovered ORCs inventory accounts were significantly overstated. Easy Money have commenced legal action against your firm which you are seeking to defend.

Discuss whether AAA Accountants can defend the legal action by Easy Money. In your brief to your lawyers advise of what actions you took and all necessary steps to ensure there was compliance with the Corporations Act 2001 (Cth) and the general law. Make assumptions of fact where necessary. What would be your strongest defence against Easy Money?

You are required to provide advice to the audit supervisor and to take any and all necessary steps to ensure there is compliance with the Corporations Act 2001 (Cth) and the general law.

1. REVISION

Essential Readings:

HHA paras 20.17-20.22: Reports

HHA paras 20.1-20.16: Audit

Corporations Act 2001 (Cth)

Auditors:

• Auditors: ss324AA, 324BA-324BC, 1280, 1292, 329
• Companies that require an Auditor: ss292, 301, 293, 294
• Performing the Audit: ss307, 308, 250RA, 250T, 311, 1287A
• Auditors Rights: ss310, 312
• Auditors Independence: ss336, 324CA-324CH, 324DA-324DD

Account:

• Accounting Standards: ss296, 334
• Financial Records and the books: ss9, 286, 588E, 290
• Financial Reports: ss9, 292ff, 314, 319, 320

Periodic Disclosure: ss295, 298ff - especially 299(1) and 300

• by small proprietary companies: ss292(2), 293, 294
• by disclosing entities: ss111AC-111AJ
• by companies listed on ASX: Listing Rules

Continuous Disclosure:

• by disclosing entities: ss674, 675 (both civil penalty and criminal)