a. Legal Position of the Firm:

• The auditor’s legal position involves potential liability in negligence if it is proven that they failed to exercise reasonable skill, care, and diligence.
• Legal responsibility may arise under common law if it is shown that the firm breached its duty by failing to detect the overstatement of assets or by not reporting it.
• Liability could extend to stakeholders if they relied on the auditor’s report, which led to financial losses.
• To avoid liability, the firm must demonstrate adherence to International Standards on Auditing (ISA) and confirm that it performed a thorough audit aligned with these standards.
• The firm’s defense may include evidence of comprehensive audit planning, execution of relevant audit procedures, and professional skepticism applied in evaluating the asset values and viability.

b. Requirements for Due Care:

• Professional Competence: The audit firm must ensure the audit team has adequate skills, knowledge, and experience in the media industry to identify valuation and viability risks.
• Planning and Supervision: The audit should be adequately planned, with a focus on risk assessment, including possible overstatement of assets and the company’s viability.
• Professional Skepticism and Judgment: Auditors must apply skepticism, particularly regarding asset valuations and management’s future projections, to identify potential misstatements.
• Compliance with Standards: Following ISAs and regulatory guidelines ensures adherence to the due care principle, which enhances the reliability of the audit.
• Review and Quality Control: Peer review and stringent quality control checks within the firm can help ensure the audit meets professional due care standards.

c. Steps and Procedures to Prevent Such Situations:

• Enhanced Risk Assessment: Implement rigorous risk assessment procedures that consider market rumors and the impact of digital investment, adjusting the audit approach as necessary.
• Asset Valuation Verification: Conduct thorough asset valuations and impairment testing, especially in a volatile industry, to confirm they are not overstated.
• Continuous Communication with Management: Establish a continuous dialogue with management to gain insights into operational decisions that affect asset valuations and business sustainability.
• Independent Reviews: Engage an independent valuation expert for high-risk or significant asset valuations to ensure objectivity and accuracy.
• Monitoring of Financial Viability: Regularly review the company’s liquidity, funding strategies, and operational adjustments to ensure the company remains financially viable, particularly if they are in a loss-making phase.