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How does Legal Liability make auditors work ethically

How does Legal Liability make auditors work ethically

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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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