ACC311 Fundamentals of Auditing Assignment No.1 Due Date May 23, 2014

Lesson 15. Understanding The Entity & Its Environment & Assessing The Risks Of Material Misstatement

SEMESTERSPRING2014
FUNDAMENTALS OFAUDITING(ACC311) 
ASSIGNMENT NO. 01 
DUE DATE: 23RD 
MAY, 2014 
MARKS: 10 
LEARNING OBJECTIVE: 
This assignment aims to give an understanding to the students to identify the auditor’s 
liability in the light of related provisions of the Companies Ordinance 1984. 

LEARNING OUTCOME: 
After going through this assignment, the students would be able to identify the auditor’s 
liability in the light of related provisions of the Companies Ordinance 1984. 

Read carefully the following independent cases and give answers accordingly. 

Case: 1 
Annual general meeting of ABC Limited is going to be held on May 20, 2014 at the 
company’s head office. Secretary of the company has disseminated notices of the meeting 
well before 21 days of the date fixed for the meeting to directors, managers and shareholders 
of the company except Mr. Hassan – auditor of the company. Mr. Hassan believes his right to 
receive the notice to attend meeting. 
Give your opinion on Mr. Hassan’s believe while stating the related provisions of the 
Companies Ordinance 1984. (2.5 Marks) 
Case: 2 
Mr. Ali has recently been appointed as auditor of XYZ Limited at its recent annual general 
meeting. Upon completion of his first audit of the company, he issues an un-qualified report 
to the company’s shareholders. On the basis of this audit report, the company successfully 
raised a loan of Rs. 500 million from a local bank. Unfortunately, after 5 months of the loan obtained, the company announced its plan for going 
into liquidation stating a chance for bankruptcy. During the liquidation process, it revealed by 
the company’s liquidator that shares worth Rs. 500 million shown in the company’s balance 
sheet are not original in nature. Upon initial investigations, it was found that the transaction 
was fake but dully certified by the auditor knowingly on mere presentation of the associated 
documents. 
The bank has filed a suit against the auditor of XYZ on the plea that the auditor should verify 
the originality of the transaction documents. But, the auditor argues that he was not supposed
to verify originality of the documents, rather he was responsible to verify availability of the 
documents only. 
a) Do you think that the auditor’s argument is valid regarding his duties? Support your 
answer with the related provisions of the Companies Ordinance 1984. (2.5 Marks) 
b) What type of liability can be imposed upon the auditor in the above case? Mention 
other situations in which such type of liabilities can be imposed? (2.5 Marks)


Case: 3 
In a recent annual audit of Model Manufacturing Company by Mr. Ahmad, he found the 
company’s fixed assets overvalued at abnormally higher values. But, owing to the years’ old 
relations with the company CEO, he gave an un-qualified opinion in his audit report and 
concluded that the financial statements give true and fair view of the states of affairs of the 
company. 
Later, one of the company’s shareholders sued against the auditor for not performing his duty 
according to the related provisions and issued false statement to deceive the shareholders. 
Describe the type of liability arises on the auditor in the above situation and narrate the 
possible consequences of the auditor’s action. (2.5 Marks) 

IMPORTANT: 
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