TUTORIAL AUDITOR

NAMA AHLI KUMPULAN:

1. NUR IZYAN NAZIRAH BINTI BAHARUDIN
2. NURUL FATIHAH BINTI EZAM
3. NOR ILYA NATASYA BINTI MOHAMAD
4. HIDAYATUL HUSNA BINTI HASHIM
5. SHARIFAH MAIZATUL ADAWIYAH BINTI SYED MAZLAN

The question asked to advise the liquidator of Kula Bhd to take legal action against
Ahmad, the auditor. The first issue is whether Ahmad has breached his duty to report the fraud
done by Dato Hamzaid and Mr Yazid. According to Section 266(9), the auditor has an obligation
to notify the registrar in writing of any information regarding fraud or dishonesty involving a
public company. The auditor may face a term of imprisonment of 5 years or a fine of RM3
million, or both. Ahmad needs to report to the management immediately instead of waiting until
the annual general meeting. Refer to the case, Re London & General Bank, the auditor must
protect shareholders interests and keep monitoring the director. The auditor does not fulfill their
obligations to notify the management quickly if there is fraud in this case, even though they are
able to communicate with the director. But Ahmad failed to look into the situation of all errors
and frauds before submitting the audit report. Hence, Ahmad failed to satisfy his obligations as an
auditor, which shows a lack of attention to his work. Relating to the case, the liquidator of Kula
Bhd can sue Ahmad for breaching his duty as an auditor.

The second issue is whether Ahmad has breached his duty to be independent. An auditor is
required to be independent in carrying out audits and in preparing reports. He cannot depend on or
under influence of others. It is characterized by integrity and requires the auditor to carry out his
work freely and in an objective manner. Auditors must find assistance and information on his own
by asking the company's directors, accountants and other employees in carrying out their duties
but when it is time to make a report and form an opinion, auditors must not rely on the others. In
the case of Dominian Freeholders Ltd. v Aird, the court rejected the application made by the
auditor since the application argued that the accountant had supplied him with incorrect
information and breach of duty owed to him. Referring to the case above, Ahmad as a main
auditor just contacted Datuk Hamzaid to get an explanation about the matter of large sums of
money being credited into Jiwalara Sdn Bhd on monthly basis per instruction by Datuk Hamzaid.
Ahmad was satisfied with the explanation given by Datuk Hamzaid and did not dig further
information related to that matter and make a report that relied on the explanation made by Datuk
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 The third issue is whether Ahmad has breached his duty as an auditor to exercise
reasonable care and skills. An auditor must exercise reasonable care and skills to ensure that he
cannot be sued for breaching the contract. For any losses that have been faced by the company,
the auditor must be liable for negligence. In the case of Re Thomas Gerrard & Sons Ltd.
(1968), the alteration of invoices was made by the managing director, and some of the invoices
got attention from the auditor. Suddenly, the company went into liquidation, and the liquidator
brought an action against the auditors. The court held the auditor liable for that because once the
invoice had been altered, the auditor had put an inquiry on it, and it was insufficient to merely
seek the managing director. Following the principle of law above, Ahmad had breached his duty
of reasonable care and skills since he made Kula Bhd suffer losses, so Ahmad as an auditor must
be liable for negligence. By applying the case of Re Thomas Gerrard & Sons Ltd. (1968), the
alteration invoices made by Mr. Yazid came to concern Ahmad, on which it was to make payment
from the company to one company, which was PT Juasajaya, which received the money on behalf
of PT Jakartaraya, which is a Kula Bhd subsidiary company in Indonesia, so Ahmad did not
investigate further. But suddenly, Kula Bhd faced financial difficulty, and PT Juasajaya was not
related to PT Jakartaraya instead, the biggest shareholder was Mr. Yazid, who was also the
director of the company. Thus, Ahmad had breached his duty to exercise reasonable care and
skills, and he needs to be liable for the loss suffered by Kula Bhd.

In conclusion, the liquidator of Kula Bhd can sue Ahmad for breaching his duty to report
to the management when he found an error on the audit report and instead kept silent. Secondly,
Kula Bhd can sue Ahmad for breaching his duty to be independent since he only depends on the
information given by the officers and staff of Kula Bhd. Lastly, liquidator of Kula Bhd can sue
Ahmad for breaching his duty to exercise reasonable care and skills since he is concerned about
the altered invoices, but he does want to investigate further until Kula Bhd turns into a financial
problem.
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