In: Finance
How does Legal Liability make auditors work ethically
Legal Liability make auditor work ethically
The four major source of auditors’ liability are –
1.Clients: Management, board of directors, shareholders & government
2. Third party under common law: Outsiders including but not
limited to bankers, environmentalist & governance
activist
3.Civil liabilities under federal law &
4.Criminal liabilities
These four major sources ensure that auditors work in the best
interest of all parties. It is the fiduciary responsibility of the
auditor to report any wrongdoing and prevent them from happening.
If it has been observed that enough due diligence has not been
taken, the auditor can be held responsible and can be asked to make
good the loss. In-case of criminal liabilities, auditor can lose
his license and management can also be imprisoned in extreme cases.
To ensure no undue advantage is taken from the auditor, there are a
set adherence to generally accepted auditing standards to provide
evidence that auditor has exercised due care in the audit.
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