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Significant embezzlement by a senior manager

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Reference no: EM133205365

ABDC Mining Ltd applied for a $10 million loan from Bank of Perth. The bank requested that audited financial statements must be submitted before they could approve the credit. ABDC agreed to do this and also agreed to pay the audit fee. An audit was performed by an independent qualified accountant who submitted his report to ABDC to be used solely for the purpose of the loan negotiation with the bank. The bank, after reviewing the audited financial statements, decided not to extend the loan to ABDC. The bank had been using some ratios from the financial statements and decided they were too low. ABDC used the financial statements to obtain a loan from another financial institution. However, it was subsequently discovered that the auditor had failed to detect a significant embezzlement by a senior manager at ABDC Ltd.

Required

  1. What are the liabilities, if any, of the auditor? To whom is the auditor liable?
  2. If the auditor did uncover the embezzlement, and noted it in the notes to the financial statement, is he still liable and to whom?
  3. What factors should appropriately be considered before the auditor's liability is confirmed? 

Reference no: EM133205365

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