Question

Demonstrate an understanding of the auditor's professional, legal and ethical responsibilities to their clients and third parties

Answer 1

Auditors have professional, legal and ethical responsibilities to their clients and third parties.

The professional responsibility of auditors is related to performing their services. Auditors have a professional responsibility to perform their professional services of audit with due care. In other words auditors have to exercise proper degree of their skills and judgement while rendering audit services. This will help in ensuring that the underlying purpose and objective of the audit is achieved. It should be noted that due care includes exercising the degree of professional skepticism that is expected in the audit of financial statements. The professional responsibility towards the client will help in ensuring that the audit has been carried out properly and towards third parties will help in ensuring that the audited financial statements that they depend on is true and fair. Third parties like investors, lenders, etc. depend on audited financial statements to make decisions like investing in the company, providing loan to the company etc.

Legal responsibility of auditors pertains to adhering to legal requirements. Thus auditors have to adhere to the generally accepted auditing standards. There should be no breach of contract, tort, deceit or fraud on the part of the auditors. Thus legal responsibility of auditors is to ensure the prevention, detection and reporting of any fraud and other illegal acts.

Auditors have ethical responsibilities to their clients and third parties. The ethical responsibilities are based on rules of integrity, objectivity, confidentiality and competence. The integrity rule requires auditors to uphold industry principles and guidelines. The objectivity rule requires auditors to perform their services without any biases and partiality. The confidentiality rule requires auditors to share information only with authorized stakeholders.