Case Study


Note: The cases below are selected from auditing textbooks, reference books or online resources.

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Scenario One: (700 Words) Bestcare Audit and Assurance services Pty Ltd (Bestcare), a small audit firm owned by Eddie Brown, was engaged to provide audit services to Elite Automobile Parts Pty Ltd (Elite). Martin, the manager of Elite, requested Eddie to complete the audit within ten business days so that he could submit the audited financial statements as a proofed document for the load application. Eddies accepted the appointment immediately and agreed to provide the services within accepted timeframe. To commence the audit service, Eddie engaged four accounting students who are just graduated from a community college and provided the in-house training for all the staff involved in this case. The training lasted for five hours. In the training, Eddie informed the staff to focus on checking the calculations and numbering accuracy of the ledgers and accounts’ balances instead of reviewing the internal control procedures. Followed by the instructions, the four students provided a financial report that favored Martin’s one without explanations in notes, disclosures and accounting policies adoption. Based on the report prepared by the four newly hired staff, Eddie issued un unmodified auditor’s report for Elite without referring to adopted accounting standards and relevant statutory requirements. You are required to answer: Discuss whether Eddie has exercised reasonable skill and care in conducting the audit. Please refer to relevant law or standards for clarifications. Scenario Two: (800 Words) Coles Metro Ltd is a listed company in the Australian Securities Exchange. The main business of Coles is to offer all kinds of organic food and drink for local people. Coles board consisted of five directors; three of them are non-executive directors, one CEO and one CFO. None of the board members expertise in business expansion and retail marketing strategy. With positive estimation for the next five years’ economy, Coles metro has opened more than three hundred branches both within Australia and New Zealand over the past five years. The expansion was conducted with substantial loans from different banks and capital raising from both local and foreign markets. However, after reviewing the current accounting system, board members have expressed concerns on the expansion as the operated accounting system is unable to consolidate the company’s financial performance across different subsidiaries. You are required to answer the following question,

Identify at least four inherent risk factors for Coles Metro Ltd and clarify their influences on the financial statement

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