ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability
Dunmore & Co audited Kestrel Plc and failed to perform adequate inventory testing, so a material overstatement of inventory went undetected. Kestrel's shareholders sue for losses after the share price fell. Which of the following is the element that the claimants must establish in addition to the existence of a duty of care and a breach of that duty in order to succeed in negligence?
The claimant must also prove that the auditor's breach caused a loss that actually occurred and was not too remote. Negligence requires duty, breach and causation of damage. Intent to deceive is a feature of fraud, not negligence, and is not required.
- AThat the auditor acted with intent to deceive
- BThat the breach caused a loss that was not too remote, and the loss actually occurredCorrect
- CThat the auditor was a member of a professional body
- DThat the financial statements were also reviewed by internal audit
Explanation
Negligence requires a duty of care, a breach of the standard of care, and resulting loss that was caused by the breach and is not too remote. Intent to deceive is relevant to fraud, not negligence, so the first option is wrong. Membership of a body and internal audit review are irrelevant to the elements.
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