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Hayoos Ltd, an NZX listed company, engaged KGMP to perform its annual audit. KGMP conducted the audit competently and in full compliance with all relevant auditing and ethical standards. On completion, they billed Hayoos Ltd for $30,000 as per the agreed fee estimate in the signed engagement letter.

soon after issuing the audited financial report, Peter Agha, the assistant accountant, disappeared, taking with him $40,000 of Hayoos funds. soon after this, it become apparent that Peter had been engaged in a sophisticated misappropriation scheme during the past year and had embezzled a further $50,000 of the companies funds.

Hayoos management has reduced the auditors fee they are prepared to pay $5,000. they have explained that they hold KGMP responsible for at least half of the embezzled $50.000, but intend to sue the auditors, on behalf of the company, for full recovery of $90,000 stolen. they note that this will be an agenda item for upcoming shareholders meeting:

 

Required.

1. state and briefly explain whether Hayoos management is likely to successfully sue KGMP, their auditors. include the four conditions of liability, and whether these have been met.

2. state and briefly explain whether the managers are able to reduce the audit fees with references to the Company Act 1993 requirements

3. state what rights KGMP have under the companies act regarding the upcoming shareholders meeting.

4.(a) why hayoos ltd is an FMC reporting entity and

(b) what difference this makes to their deadline for preparation of financial statements after the balance date, as compared with a normal company.

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