A company Hira Ltd. has been mis-reporting its financial statements since more than 10 years which none of the stakeholders noticed for years. When the situation of the Company went from bad to worse and it had no option but to declare it bankrupt, the company issued a press statement that there is disparity between actual and reported results due to accounting errors. The first question from shareholders of the Company was why the auditors had not spotted and corrected the fundamental accounting errors? The auditor of the Company, WCP partnership (one of the largest audit firm in the country), had compromised its independence by a large audit fee and also consultancy income worth several times the audit fee. Because Hira Ltd. was such an important client for WCP, it had knowingly signed off inaccurate accounts in order to protect the management of the Company. The investigation also found a number of significant internal control deficiencies including no effective management oversight of the external reporting process and a disregard of the relevant accounting standards. Based on the above fact, answer the following: (a) Does the case highlight importance of independence of auditors? (b) Can such situations be voided with the provision of rotation of auditors?
A company Hira Ltd. has been mis-reporting its financial statements since more than 10 years which none of the stakeholders noticed for years. When the situation of the Company went from bad to worse and it had no option but to declare it bankrupt, the company issued a press statement that there is disparity between actual and reported results due to accounting errors. The first question from shareholders of the Company was why the auditors had not spotted and corrected the fundamental accounting errors? The auditor of the Company, WCP
Based on the above fact, answer the following:
(a) Does the case highlight importance of independence of auditors?
(b) Can such situations be voided with the provision of rotation of auditors?
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