Impulse Pty Ltd (Impulse)

Impulse Pty Ltd (Impulse) is an entertainment system manufacturerthat was established in
2005. Your audit firm King

Queen have been the auditor of Impulse since its formation. The

audit report for the year ended 30 June 2012 was unqualified. Although

Impulse had been

suffering liquidity problems with a drop in both debtors’ turnover and inv entory turnov er,

Ifing & Queen did not

consider that any additional audit work was necessary in re ard to the

valuation of these assets. In August2012, Impulse obtainega large

loan from a finance

company, Easy Finance Limited (EFL),to provide additional working capital. However, Impulse
continued to experience

sev ere trading problems and was placed in liquidation in December

2012.

Ifing & Queen has been notified by EFL’s solicitors that they are

taking action against yourfirm

balse on the audit of the 30 June 2012 financial report. EFL claim that the cause of ImpuIse’s
fai ure

related to the inadequate provision for doubtful debts and a fall in the value of

inventories on hand, and that these problems were evident

at 30 June 2012, but had not been

adeqttirately dealt with in the financial report due to your negligence. They also claim that they
wou

not have given the loan to Impulse if the 2012 financial report had been qualified.

Reqiu/ired

(a) ould King & Queen be liable to EFL?

Provide specific case referencesto support your

answer.

81.)) Would your answer change if EFLhad written to King & Queen advising you that

intended to make a loan to Impulse and were relying on the 2012 audited financial report

to assist them in making their

decision?

PS: please see attachments, there are the chapter needed forthis assessment from the textbook.
the text book we using now,is

Gay, G. & Simnett, R. (2010),Auditing &Assurance Services in Australia, 5th ed., McGraw-Hill Australia.
PS: I am not sure how many

specific sources need, please just try to get5 or 5 above if it is possible.

If you hav e any question, please email me
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