Reference no: EM132738027

ABC Books sells discounted books through workplaces throughout Victoria. In recent years books have become harder to sell at ABC Books normal price which is 80% of the regular retail price. Slower sales and increasing levels of stock to ensure new titles are available has resulted in ABC Books looking to restructure their business to diversify into new areas of operations. To assist with seeking ABC Books finance applications, financial statements were prepared as at 31st March 2019 and these statements were audited by their usual auditors, Auditor for Results.

• In these financial statements the inventory on hand figure is the total of the number of books listed as inventory on hand multiplied by the recommended cost price. The recommended cost price does not take into account discounts ABC Books receive when purchasing books. The inventory on hand includes all books on hand in the warehouse and also all books left in the many workplaces to be sold.

• Due to this extra audit taking place in April a number of experienced staff were on annual leave and so the field work for inventory was undertaken by a staff member that usually audits superannuation funds. The work papers were reviewed and accepted by the audit partner and an unmodified report was issued.

• In May 2019 a loan was secured based on the ABC Books audited financial statements by a new finance company, Fast Finance, however by December 2019 ABC Books had not made any monthly repayments on the loan. In January ABC Books closed business and in the selling up of all their assets they were only able to repay 15% of the loan.

• Fast Finance is now suing Auditors for Results for the balance of the loan.

Required:

Problem 1: Discuss whether Fast Finance are likely to be successful in trying to recover the balance of the loss from Auditors for Results.