Auditors may be liable to shareholders and other parties who may have relied on the financial statements upon which the auditors have expressed an opinion. This is because the auditors are generally taken as owing a ―duty of care‖ those parties and they could be liable in the tort of negligence if they failed that duty. Required; State and briefly explain five possible measures that auditing firms should take in order to avoid legal actions for negligence against them

  • You are required to state and briefly explain five possible measures that auditing firms should take in order to avoid legal actions for negligence against them.
    The auditor can undertake the following steps to reduce potential liabilities for negligence:
  •  Undertaking measures to ensure that all assignments are performed to the highest quality standards. The auditor should ensure that the requirements of the International Standards on Auditing are adhered to in all assignments;
  •  Proper planning of the audit work to ensure that all potential risks that could affect the financial statements are identified and appropriate audit procedures performed;
  •  Putting in place appropriate quality control policies and procedures and monitoring their effectiveness;
  • Limit access to his work or reports, where possible;
  •  Include a disclaimer of liability clause in the relevant document or report.
    Example of such a clause would be ― while every care has been taken in the preparation of this document, it may contain errors for which we cannot be held responsible‖
  •  When submitting un-audited accounts or other un-audited financial statements (where the auditor prepares accounts on behalf of the client) the auditor should ensure that the purpose for which the statements or reports have been prepared is properly explained on the face of the report.
  • Obtaining proper terms of engagement such that the auditor‘s roles and responsibilities are clearly laid out and the client understands his role in the engagement



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