ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability
Tamsin & Partners audited Orchard plc and issued an unmodified opinion. The audit file shows the engagement team complied with ISAs, but inventory existed in a fraud concealed by sophisticated collusion by management. Orchard's shareholders claim negligence. Which is the strongest defence available to the auditor?
The strongest defence is that the audit was planned and performed in accordance with ISAs with professional scepticism, so there was no breach of the standard of care. Collusive fraud is an inherent limitation of an audit, so failure to detect it does not by itself prove negligence.
- AShareholders cannot sue because the auditor is appointed by the directors
- BThe audit was planned and performed in accordance with ISAs, so the auditor met the standard of care despite the undetected collusive fraudCorrect
- CThe auditor is not liable for any misstatement caused by fraud under any circumstance
- DThe fee charged was low, so the standard of care was reduced
Explanation
An audit properly planned and performed in accordance with ISAs, with professional scepticism, may not detect collusive fraud because of inherent limitations; compliance supports a defence of no breach. Option C is too absolute since failing to follow ISAs on fraud risks can be negligent. Fee level does not lower the required standard.
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