基础审计学 Section 3.pdfVIP

LEGAL LIABILITY SECTION 3 Legal Liability and Auditors Responsibilities Auditors are liable in law for their professional conduct Failure to exercise due care Legal liability evolves over time Common La Case law or unwritten law Auditor may be liable for damages sufferd by clients or third parties • Four conditions: 1. Legal duty of care 2. Breach of the duty 3. Damages 4. Reasonable proximate connection Duty of Care • English courts • London and General Bank, 1895 • Must exercise reasonable care and skill • A definition of reasonable care • Where there is nothing to excite suspicion • Where suspicion is aroused Pacific Acceptance v Forsyth, 1970 • Duty of care still remains • Reasonable skill and care calls for changed standards • Standards more exacting • How did the auditing profession deal with this? Liability to Clients • If accountant agrees to perform services • An engagement letter • Privity of contract • Auditors Liability for negligence 1. Internal control weaknesses 2. Insufficient reliable audit evidence 3. Too much reliance on management representations • Types of Action by the client • Breach of contract • A tort action • Auditors defences • Lack of duty • Absence of misstatement • Absence of negligence • Contributory negligence • No damages • Absence of causal connection 1136 Tenants Corp v Max Rothenberg Co, 1971 • TC owned a cooperative apartment house • MR failed to discover an embezzlement of more than $100,000 • Facts: • TC booked fee as audit expense • MR marked each page of F/S as unaudited •