John Mutiso bought shares of Sh.2 million six months ago in Kenya Company Limited which has since gone into liquidation. He intends to sue XYZ & Co. Certified Public Accountants for the imminent loss of Sh. 2 million which he is likely to suffer. XYZ & Co. had audited the Kenya Company Ltd. The previous year and issued an unqualified report. John Mutiso claims that he solely relied on the audit report when he took that investment decision. Required: State the measures XYZ & Co. should undertake to minimize potential liability for professional negligence

The auditor should ensure that he is competent enough to carry out the audit assignment in order to be able to carry it out according to the professional standards. He should also ensure that he actually conducts this audit in accordance to the standards set by both professional and ethical bodies and in utmost care. By doing so, he will be able to prove that the audit was not carried out negligently.

The audit should be carried out in detail and every aspect of it taken seriously. If the information necessary in one area are unavailable. The auditor should obtain a letter of representation in order to ensure that he makes an informed decision and he can be able to prove so, if the need arises.

The auditor can enter into an agreement with his client that his report should not be used by another person apart from the client.

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
Taking professional indemnity insurance cover.

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