Auditing Question:

Background

You are a manager in the audit division at Miller Yates Howarth (MYH), an accounting firm with offices throughout the major regional centres of NSW and Queensland. Although a medium sized firm by national standards, MYH is the second largest regional accounting firm in Australia. Most of MYH’s audit clients are in the agriculture, mining, manufacturing and property industries. All of those industries are currently under pressure, either from a downturn in commodity prices or fierce competition from overseas competitors.

Question

Legal Liability Issue

Shareholders in GGL are disappointed about its falling share price. A number of issues may have affected the price, including a fall in the price of gold and a damages claim against GGL. The claim began three years ago as a result of GGL undertaking mining operations without a mining lease on land that they did not own. As a result of this action GGL has had to cease mining on this section of their mine in the current financial year. Although the claim was made some time ago, a large contingent liability for the amount was only included in the previous year’s accounts. Considerable concern about the significant damages claim was raised by shareholders at the last annual general meeting. Many voiced the opinion that this contingent liability should have been included in previous annual accounts, claiming negligence by the auditors.

Required:

With reference to relevant case law, prepare a report of 1200 words for the managing partner of MYH on the strength of any negligence case that GGL might bring against MYH. The report should follow standard report structure.