The company being audited has had substantial changes in accountancy staff in the 6 months and the audit testing has revealed significant discrepancies in the accounting records.

Part 1 – You are the partner in charge of the audit division in your accountancy firm. You are presently in charge of the audit of a company called Nevertire Pty Ltd. During the process of the audit the audit supervisor (your senior audit manager on the ground conducting the audit) reports the following activities that have occurred at Nevertire:
I. The company (after several attempts) cannot finalise its P&L and Balance Sheet for the period and has asked the audit team to finalise it for them. It has indicated it will pay extra above the agreed audit price.

II. As Nevertire is an export/import firm it has stated that it has at least 100 containers (full of inventory) located at another location. It has shown the audit supervisor three containers (full of inventory) and asks the audit supervisor to certify the total inventory figure in the Balance Sheet and P&L based on the three containers audited and the record of the continuous inventory maintained by the company.

III. The audit supervisor whilst auditing the company’s records of its shareholdings noticed shares held by a Mrs Jones. The address of that shareholder is the same address of the Senior Partner in the accountancy firm and Mrs Jones is the wife of that partner.

You are required to provide advice to the audit supervisor and to take any and all necessary steps to ensure there is compliance with the Corporations Act 2001 (Cth) and the general law.

Part 2 – After resolving the matters listed above, the audit supervisor casually comments to you that Nevertire Pty Ltd are thinking of approaching a finance firm to advance them money to finance their further development. It appears Nevertire intends using the audit report being prepared as part of the present audit as the basis for encouraging the finance firm to advance the money for their development.

Advise of what actions you would take to ensure there is compliance with the Corporations Act 2001 (Cth) and the general law.


Essential Readings:

HHA paras 20.17-20.22: Reports

HHA paras 20.1-20.16: Audit

Corporations Act 2001 (Cth)


· Auditors: ss324AA, 324BA-324BC, 1280, 1292, 329

· Companies that require an Auditor: ss292, 301, 293, 294

· Performing the Audit: ss307, 308, 250RA, 250T, 311, 1287A

· Auditor’s Rights: ss310, 312

· Auditor’s Independence: ss336, 324CA-324CH, 324DA-324DD


· Accounting Standards: ss296, 334

· Financial Records and “the books”: ss9, 286, 588E, 290

· Financial Reports: ss9, 292ff, 314, 319, 320

Periodic Disclosure: ss295, 298ff – especially 299(1) and 300

· by small proprietary companies: ss292(2), 293, 294

· by “disclosing entities”: ss111AC-111AJ

· by companies listed on ASX: Listing Rules

Continuous Disclosure:

· by “disclosing entities: ss674, 675 (both civil penalty and criminal)

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