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Describe the nature of the activity

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Question - You are the audit partner of Bigger and Better, assigned to the audit of Fabulous Ltd. You issued an unmodified auditor's report for the year ended 30 June 2019. In December 2019, three employees of Fabulous Ltd. were charged with systematically and deliberately entering fictitious transactions and embezzling about $12 million. Your firm has been notified by the legal representatives of Fabulous Ltd. that they are taking legal action against your firm based on the audit for the year ended 30 June 2019. They claim that you and your audit team were negligent in conducting the audit, due to your failure to identify the activities of the employees of Fabulous Ltd.

Required -

a) Describe the nature of the activity that the three employees had engaged in?

b) What are the legal requirements to successfully sue an auditor for negligence? Provide a detailed explanation based on this assessment on whether or not the audit firm, Bigger and Better, could be found guilty of negligence based on the facts outlined in this case?

c) Do you think Fabulous was guilty of negligence? Provide support for your position.

Reference no: EM132718541

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