The Statutory Audit- Understanding the Legal Duties and Responsibilities of the Auditor

Abstract

The objective of this paper is to discuss, in a holistic manner, the legal duties and responsibilities of the statutory auditor (accountant). The headline on accounting failures of the early twenty-first century involving Enron, WorldCom, Adephia, Tyco, and many others is reason enough to study indepth the core legal duties, responsibilities, and liabilities of the Statutory Auditor. The Auditors' legal liabilities in most countries can be categorized under the following headings: liability under legislation (either civil or criminal) and liability arising from negligence under common law. Accountants have historically played an important role in the detection and deterrence of fraud; but fraud is much more than numbers. It involves complex human behaviours such as greed and deception factors that are difficult to identify and quantify. Unfortunately, the duties and responsibilities of statutory auditors have become the subject of interest to the investor community in the light of the spate of corporate collapses in recent years. These scandals have widened the expectation gap of the public about accountants. Their integrity has been truly dented. The calls for tighter controls over the profession are being spearheaded by President George Bush of the USA. The profession is indeed in a quagmire. There is the need for swift remedial action to redeem its image. Sadly, not many people (even the educated) understand the core legal duties, responsibilities, and liabilities of the statutory auditor. This paper is an attempt to draw on decided cases in the United Kingdom (since there are very few or no decided cases in Ghana) to explain the legal duties, responsibilities, and liabilities of the statutory auditor. Again, because of Ghana's colonial history, it is an undisputed fact that Ghana's political, economic, legal, business, and educational systems are largely structured and based on the British system. This is evidenced in the extensive use of British cases as precedents in Ghana's law courts. This article is in two parts. Part II will follow in the next issue of the Journal.