The statutory audit- Understanding the legal duties and responsibilities of the auditor Part II

Abstract

Fundamental to the auditor's consideration of risk, is the fact that the auditor can be sued by the client under contract law (professional negligence, failure to spot a material fraud etc.) or by a third party in a tort. The auditor's liability springs from the general principle of law that where a person is under a legal duty to take such care, whether imposed by specific contract or otherwise, the failure to exercise reasonable standard of care will make that person responsible for any resultant damage or loss to those to whom the duty is owed. What conduct satisfies the standard of care required will, in any particular case, depend entirely upon the circumstances. The general degree of skill and diligence demanded of, and attained by auditors today is unprecedented. The question as to whether an auditor is or not guilty of negligence in any particular case, is largely determined by reference to the standard to which contemporary members of the profession conform. This part (Part 2) of this article makes compelling arguments for the need to understand auditor's legal duties and responsibilities as regards fraud. It provides concluding thoughts on the subject matter. We advance various arguments and proposals for enhancing the image of the statutory auditor.