SRJ Audit Pty Ltd v Safe and Sound Building Society
[2015] QCAT 44
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- SRJ Audit Pty Ltd v Safe and Sound Building Society[2015] QCAT 44
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SRJ Audit Pty Ltd v Safe and Sound Building Society[2015] QCAT 44
SRJ Audit Pty Ltd v Safe and Sound Building Society[2015] QCAT 44
CITATION: | SRJ Audit Pty Ltd v Safe and Sound Building Society [2015] QCAT 44 |
PARTIES: | SRJ Audit Pty Ltd (Applicant) |
v | |
Safe and Sound Building Society (Respondent) |
APPLICATION NUMBER: | MCDO112-14 |
MATTER TYPE: | Other minor civil dispute matters |
HEARING DATE: | 14 November 2014 |
HEARD AT: | Brisbane |
DECISION OF: | Adjudicator Bertelsen |
DELIVERED ON: | 3 February 2015 |
DELIVERED AT: | Brisbane |
ORDERS MADE: |
|
CATCHWORDS: | Audit – financial information – provision of information – audit in accord with engagement letter – production of audit based on information available – timeliness of provision of audit |
APPEARANCES:
APPLICANT: | Jason Croston, Director Tracy Johnson, Corporate Services Manager |
RESPONDENT: | Daniel Murphy, Director |
REASONS FOR DECISION
Application
- [1]By application filed 21 August 2014 the applicant SRJ Audit Pty Ltd (‘SRJ’) seeks the sum of $8,580 from the respondent Safe and Sound Building Society (‘the Society’) for accounting services provided to the Society at its request.
Background and Evidence
- [2]On 19 March 2014 SRJ presented to the Society an engagement letter setting out the basis on which it would undertake an audit of the Society’s financial position as at 31 January 2014. The audit was to be conducted in accordance with New Zealand Auditing Standards. According to SRJ it fulfilled responsibility to express an opinion on the financial statements based on its audit.
- [3]The engagement letter stated:
Our audit will be conducted on the basis that management and those charged with governance acknowledge and understand that they have responsibility:
- (a)for the preparation of the financial report that gives a true and fair view in accordance with the Building Societies Act 1965 and New Zealand Accounting Standards;
- (b)for such internal control as management and those charged with governance determines is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error; and
- (c)to provide us with:
- (i)access to all information of which the directors and management are aware that is relevant to the preparation of the financial report such as records, documentation and other matters;
- (ii)additional information that we may request from the directors and management for the purpose of the audit; and
- (iii)unrestricted access to persons within the entity from whom we determine it necessary to obtain audit evidence.
- [4]Under the heading of fees the engagement letter estimated the cost for the audit to be $7,800 plus GST and disbursements. The fee estimate was based on the following assumptions.
- Reconciliations are performed for all balance sheet items prior to our audit commencing.
- All transactions contained in the file have been recorded neatly and on a timely basis.
- Full access to all records and supporting documentation will be made available.
- The business maintains full and accurate books and records for all tax matters including payroll records.
- [5]Under the heading timing the audit was to be completed by 7 April 2014 or earlier.
- [6]Under the heading payment terms all invoices were to be paid within 14 days.
- [7]Under the heading ‘access to source documents’ SRJ was to have access to ‘all source documents which we may from time to time request’.
- [8]The engagement letter was signed on behalf of the Society by Daniel Murphy, Director.
- [9]Mr Croston, Director of SRJ stated SRJ conducted the audit in accord with relevant accounting standards and produced it to the society. He stated he was a registered company auditor, that he was registered with ASIC and that he was a fellow of the Institute of Chartered Accountants in Australia. He said he was a quality reviewer for the Institute of Chartered Accountants i.e. an expert in assessing the standard of an audit (peer review).
- [10]Mr Murphy took issue with the wording of SRJ’s claim being for accounting services. Mr Croston said auditing was simply a subset of accounting. The invoices attached to the application were all for auditing services.
- [11]Mr Murphy contended there was no evidence of services being performed; that there was no material in existence; that there was no evidence of production of a general account. He said he had been requesting ‘material’ since October 2014.
- [12]Mr Croston stated the sum of $7,800 plus GST charged for the audit was exactly the sum quoted in the engagement letter for provision of the audit. He said it was not the auditors responsibility to maintain records; that it was the Society’s responsibility to provide information necessary to complete the audit; that the keeping of financial records (general ledger, accounting records and financial reports) was a society responsibility.
- [13]Mr Croston said the audit report was to provide an opinion on those financial records/statements and that was what SRJ did. The final independent auditors report was dated 15 May 2014.
- [14]Mr Murphy persisted in his assertion that SRJ should have produced a general ledger on which to base the audit. He said he was required to have along with the audit a copy of the general ledger and supporting papers.
- [15]Mr Croston said a summary was produced based on bank statements and notations as well as email and telephone explanations provided by the Society. That enabled the trial balance to be produced. In answer as to whether it was possible to produce a general ledger Mr Croston said SRJ was not engaged to produce a general ledger. He said the Mr Murphy separately approached SRJ requesting information to assist with an action in progress. He said we wanted to settle this first engagement before assisting with information on the second matter.
- [16]The Society does not operate in Queensland. Its registered office is in New Zealand. It does not make offers to the public. However it is the ultimate holding entity for Safe and Sound Operations Pty Ltd. In any event it was not disputed by either party that the audit services were contracted for and to be conducted by SRJ in Queensland. SRJ is accredited for New Zealand Building Society legislation compliance.
- [17]Mr Murphy asserted it was necessary for the Society to have not just the audit but also supporting papers i.e. general ledger, schedules and registers; that these were required pursuant to s 286 of the Corporations Act 2001 (Cth) (‘Corporations Act’) for the audit to be complete.
- [18]The Tribunal put to Mr Murphy that what was provided to SRJ was what SRJ had to work with; that if there was a paucity of necessary financials provided to SRJ then the audit would necessarily be limited. Mr Murphy still insisted that supporting documentation be provided with the audit.
- [19]Mr Croston said that what would normally or typically be provided was a trial balance or MYOB statements such as to be able to produce a general ledger and trial balance. Then a set of financial statements could be produced. Mr Croston said that what should have been provided was recited on page 4 of the engagement letter under the heading ‘estimate assumptions’. However due to the urgency of the situation with SRJ having some two and a half weeks’ notice only SRJ provided the audit based on limited information.
- [20]SRJ had conducted audits for the Society in 2011, 2012 and 2013. Mr Croston said he had told the Society to install MYOB previously.
- [21]Mr Murphy stated that he was merely requesting a copy of the trial balance. Mr Croston responded requesting payment for the audit first.
- [22]The Society in its response asserted SRJ had not performed to a merchantable standard; that SRJ had left the Society in a perilous position; that SRJ had frustrated the Society’s attempt to resolve the crisis; that time was of the essence a term violated by SRJ; that quality of work was of the essence a term violated by SRJ; that applicants staff had not been willing or able to perform as contracted and that staff were unqualified and unsupervised.
- [23]On 15 August 2014 SRJ wrote to the Society in response to society claims that the audit was not completed in the timeframe recorded in the engagement letter. SRJ pointed out that urgent completion of the audit was only achievable ‘as long as all of the information that is needed by us to complete the audit is provided to us.’ The timing estimate assumptions in the engagement letter were then referred to. The letter pointed out that preconditions in the engagement letter had not been adhered to e.g. SRJ only received bank statements on 14 April 2014 seven days after the proposed finalisation date of 7 April 2014.
- [24]The letter went on to state that the audit report was issued promptly but only after ‘sufficient and appropriate evidence’ was available; that the audit had been completed by three persons being an audit partner with 18 years experience, an audit manager with over 20 years experience and an audit junior with 2.5 years experience; that the ‘crisis’ referred to was not explained nor how it was related to the audit; that invoices did not exceed the quote in the engagement letter but were exactly in accord with the sum stated in the engagement letter; that the suggestion that the audit was not acceptable to the regulator was only a reference to some minor matters (spelt out in the letter) that could be easily rectified.
Conclusions
- [25]SRJ was retained to conduct an audit for the Society for the financial year ending 31 January 2014 as it had done in the previous 2011, 2012 and 2013 years.
- [26]The terms on which the audit was to be conducted were spelt out in in SRJ’s engagement letter of 19 March 2014 signed by Mr Murphy. It is not necessary to again recite the relevant portions of that letter. Suffice to say it was the Society’s responsibility to provide SRJ with sufficient financial information in a timely manner (in this case a short two and a half weeks) to enable the audit report to be promptly prepared. Despite what appears to be a bare minimum of financial information being provided and late at that the audit report was completed and dated 15 May 2014.
- [27]The Tribunal accepts Mr Croston’s evidence that the audit was professionally conducted by qualified persons.
- [28]SRJ’s engagement letter of 19 March 2014 is clear and comprehensive. The fee to be charged was $7,800 plus GST and disbursements. SRJ invoices total $8,580 being $7,800 plus GST. There were no disbursements. The fee quoted was exactly the fee charged. That constitutes a debt. That is to say there is no need for assessment of quantum by the Tribunal.
- [29]SRJ’s letter of 19 August 2014 comprehensively addresses perceived issues on the part of Mr Murphy. Mr Murphy’s argument about compliance with s 286 of the Corporations Act was never relevant in the context of SRJ’s claim for its fee in accordance with the engagement letter. If anything, s 286 would require the Society in the first instance to keep financial records so that financial statements could be prepared and audited. Nothing was raised by Mr Murphy that could lead to any departure from the overwhelming conclusion that the audit was requested, that it was done in a timely manner given the short time frame and lack of financial material forthcoming and provided to the Society.
- [30]The claim is allowed at $8,580 together with filing fee $105 service fees $50.50 and ASIC search fee $17.49 a total of $8,752.99.