Auditing Risk

In: Business and Management

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Topic 15: Auditors Liability

Auditing, EC – July-Dec 2007

Legal liabilities of auditors
Auditors are supposed to perform their work in an honest and careful manner since they can be held liable for negligence in the following ways:
a) They don’t carry out their work as required by the ISA
b) They fail in the duty of protecting the interest of the various users of the financial statements
i.e. any person who relies on his work.
c) They don’t carry out their work with due care and skill i.e. what an ordinary skilled man or woman would do in that circumstance.
N.B. The auditor’s liability falls under three categories:
To their clients (company itself) ii) To third parties in case of negligence iii) Civil and criminal liabilities
All auditors can be sued in a civil court when they have breached their position of trust e.g. if an auditor uses information acquired during the course of the audit to make financial gain , then in such a case he or she can be sued for breaching his position of trust and confidentiality.
Section 46 of the Companies Act provide that an auditor shall be criminally liable if he willingly makes a material false statement in any report, certification or in the financial statement with the intention to deceive and mislead. Examples of criminal liabilities include:
The auditor accepts appointment when he is ineligible to do so or continue in office after becoming ineligible. ii) The auditor obtains the advantage of deception. iii) The auditor falsifies accounting records or documents. iv) When the auditor publishes misleading statements intended to deceive members.
When an auditor misappropriates a clients’ property. vi) When the auditor destroys, defaces or conceals any account record or document made or required for any…...

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