Commercial and Corporation Law Tom - Jane and Company

Question: Discuss about the Commercial and Corporation Law for Tom, Jane and Company. Answer: Introduction: The case scenario is based on a Chartered accountant firm of Sydney named, Tom, Jane Co (TJC) and a public company named Sunflower Bank Ltd (Sunflower). To expand the business, TJC offered its clients for free service in the initial year of the contract period i.e. four years, which also agreed by Sunflower. Due to the rapid business success, TJC incorporated cut-price expansion strategy, but it was lethal for the client and TJC. The accountant firm was unable to highlight the flaws of Sunflowers financials and failed to detect a fraud of $65 million. As a result, the submitted financial report of Sunflower to Australian Stock Exchange was incorrect and included huge fraud. After revealing the actual scenario, the share prices of Sunflower fell by $50 million. According to the present situation, the identified issues are stated below: Problem in audit program Fraud in financial department of Sunflower Sunflowers shares fall in market Based on these issues, TJC needs to rectify the flaws accordingly and recommend to mitigate financial frauds from Sunflowers financial environment along with evading its future bankruptcy. Explanation of Rules Resembled with the Case Scenario According to the Trade Practice Act 1974 under the Australian Tort Law, cooperation between two companies that are under contractual agreement should not mislead or engage in deceptive practice in business. In the provided case study, the scenario clearly depicts mislead in audit that resulted towards huge financial loss of a company (Sadler, 2009). In this regard, the Section 103 of Sarbanes Oxley Act also allied with the negligence in corporate environment specifically in the audit field. The act illustrates the areas of quality control standards, which resembled with employees liability and responsibility towards the organization. In this case study, fraud of Sunflower perpetrated by its Chief Financial Officer and assistant, which indicates the presence of material weakness within the internal control system under the Sarbanes Oxley Act (Sarbanes Oxley Compliance Professionals Association, 2015). According to the case scenario, it is quite clear that TJC, the accountant firm, had a professional fault during the auditing program in Sunflower. In accordance with the stated fact, another criterion of law associated with auditors liability resembled with the scenario. In this regard, it is therefore stated that the issue of this case is related with professional liability of auditors under the Australians corporate governance framework along with the efficiency towards the capital market (Australian Government, 2016). In addition, the case scenario also depicts about the economic loss and negligence in duty of care, which is under the auditors liability law. In relation to the auditors liability, the Civil Liability Act 2002 defines the claim for damages, which can be applied for the Sunflowers stakeholders and for the company itself as well (New South Wales, 2011). According to the Civil Liability Act 2002, Sunflowers stakeholders can claim monetary compensation for the damages that they faced due to the fall in share prices. Apart from this, Sunflower can also claim compensation against the chartered accountant firm for the huge loss under the Civil Liability Act 2002. Concerning the stated rules, the Corporation Law 2001 indicates that Sunflower is able to take internal security step to eliminate the fraudulent by suing the companys Chief Financial Officer and her assistant along with the demand of monetary fine (NSW Young Lawyers Business Law Committee, 2007). Application Based on the previous section, it is evaluated that there are several legal regulative actions that can be initiated by the organization for such fraudulent against the audit company. However, there are certain acts that also depict about the necessity actions against the company as well. With the support of certain relevant case examples, the study can further illustrate the case scenario to identify the most suitable approach for the company. In this context, Securities and Exchange Commission v. WorldCom Inc., Civil Action No. 02-CV-4963 (SDNY) (JSR) is one of the case includes financial fraudulent and bankruptcy (U.S. Securities and Exchange Commission, 2016). WorldCom Inc. suffered from an internal fraudulent through which the company faced a stagnancy in growth and experienced loss due to fall in share price after revealing the fraudulent news. The financial loss made the scenario of bankruptcy and reported a financial fraudulent case according to the Sarbanes-Oxley Act 2002 under the Section 308. The WorldCom Inc. has taken actions against the employees, who were involved with the fraudulent according the Corporation Law 2001. On the other hand, the scenarios of the case also integrated with the Civil Liability Act 2002, which sincerely indicates that the stakeholders claimed for their huge losses to the company and the company was entirely liable for it (Kennedy, 2012). In the year 1999, Australian High Court delivered the result of Perre vs. Apand Pty Ltd HCA 36, wherein the presence of negligence in duty of care, economic loss and damages of reputation are largely illustrated. As per this case study, Civil Liability Act 2002 and Corporation Law 2001 both legislative scenario is allied accordingly. Moreover, reasonable foresee-ability, vulnerability of the plaintiff, indeterminacy of liability along with the unreasonable burden on individual autonomy in the market highlight the areas, wherein effective legislations have been incorporated accordingly (Advice Guidance Advocacy, 2014). From the above discussed case scenario and case examples, few points are illustrated thoroughly. According to these highlighted points, it can be affirmed that auditors liability, negligence of duty both are lethal for corporate environment and can be devastative for companys reputation as well as cause of financial losses. Conclusion Concerning the Sunflower and TJC case study, TJC is accounted for negligence in duty of care along with economic and reputation damages of Sunflower. From this instance, Sunflower can file a lawsuit against TJC under the Civil Liability Act 2002 and the Corporation Law 2001. In addition to this, as per the Corporation Law 2001, Sunflower can also sue the employees, who are associated with the internal financial fraudulent. Concentrating on the case study, it can also be stated that TJC was unable to identify the misstatement of the reports due to which it resulted as huge scandal. Thus, in accordance with the stated scenario, Sunflower can file lawsuit against TJC on the basis of auditors liability. This can be a potential point in this case in the favor of Sunflower. On the other hand, stakeholders of the company can suit a case against Sunflower according the Civil Liability Act 2002 in order to manage their damages. Apart from all these actions, TJC needs to reexamine their polici es and legislative scenarios accordingly to mitigate similar type of problems in future practices as well. References Advice Guidance Advocacy 2014, Legal help desk, Perre vs. Apand Pty Ltd HCA 36, viewed 14 September 2016, https://legalhelpdesklawyers.com.au/2014/08/12/perre-v-apand-pty-ltd-high-court-of-australia-12-august-1999/ Australian Government 2016, Part 5: Auditor liability, Strengthening the financial reporting framework, viewed 14 September 2016, https://archive.treasury.gov.au/documents/403/HTML/docshell.asp?URL=Ch5.asp Kennedy, K. A 2012, An analysis of fraud: Causes, prevention, and notable cases, Honors Theses, paper 100, pp. 6-35. New South Wales 2011, Preliminary, Civil Liability Act 2002 No 22, pp. 2-6. NSW Young Lawyers Business Law Committee 2007, A project of the NSW young lawyers business law committee, A Guide to Basic Procedures of Corporate Law for Young Lawyers, pp. 1-68. Sadler, P 2009, Liability for negligent misrepresentation in the finance industry, The Finance Industry, vol. 11, pp. 17-25. Sarbanes Oxley Compliance Professionals Association 2015, Sarbanes Oxley Act Section 103, Auditing, Quality Control, and Independence Standards and Rules, viewed 14 September 2016, https://www.sarbanes-oxley-act.biz/SarbanesOxleySection103.htm U.S. Securities and Exchange Commission, 2016, U.S. Securities and Exchange Commission, Securities and Exchange Commission v. WorldCom Inc., Civil Action No. 02-CV-4963 (SDNY) (JSR), viewed 14 September 2016, https://www.sec.gov/litigation/litreleases/lr18147.htm