Question

Indicate whether you agree or disagree with the following statements and explain your reasoning. (each 2.5 marks, total: 10 marks)

a) An auditor is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, and for such internal control as is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. (2.5 marks)

b) An assurance engagement involves evaluation or measurement of subject matter against criteria. (2.5 marks)

c) By signing the engagement letter, management is not necessarily considered to be responsible for the financial statements. (2.5 marks)

d) To successfully sue an auditor, a plaintiff must only prove that a duty of care was owed by the auditor. (2.5 marks)

Answer 1

a) Agree

SA 700 deals with the responsibility of the auditor in forming his/her opinion on financial statements. This standard also deals with content and form of the auditor’s report that is issued as an outcome of the audit of the financial statements.The conclusion of the auditor, as per SA 330, whether adequate appropriate audit evidence is obtained. The conclusion of the auditor, as per SA 450, whether the incorrect misstatements are material, in aggregate or individually.

b) Agree

The subject matter of an assurance engagement can take many forms. An appropriate subject matter is (1) identifiable, and capable of consistent evaluation or measurement against the identified criteria; and (2) such that the information about it can be subjected to procedures for gathering sufficient appropriate evidence to support a reasonable assurance or limited assurance conclusion, as appropriate.

c) Disagree

An engagement letter must be signed by authorized representatives of both parties before it is considered to be a legally binding arrangement. Since this letter is treated as a contract, it should address the obligations of both parties.

d) Disagree

In order for a plaintiff to win a lawsuit for negligence, they must prove all of the "elements." For instance, one of the elements is "damages," meaning the plaintiff must have suffered damages (injuries, loss, etc.) in order for the defendant to be held liable. So, even if you can prove that the defendant was negligent, you may not be successful in your negligence claim lawsuit if that negligence caused you no harm.When deciding on a verdict in a negligence case, juries are instructed to compare the facts, testimony, and evidence in determining whether the following elements were satisfied:

1. Duty
2. Breach of Duty
3. Cause in Fact
4. Proximate Cause
5. Damages

Hence to successfully sue an auditor, not only a plaintiff but anyone can prove that a duty of care was owed by the auditor.