Question

Distinguish between an auditor's legal liability under common law and statutory law.

Answer 1

The distinction between the auditor’s legal liability under common law and statutory law are as follows:

1. Auditor’s Liability under common law arises from the legal opinions given by the honourable judges in the process of pronouncing their judgements on various cases . Since these are the opinions given in the decided cases, they become legal precedents for the other cases that follow after that. Other judges while deciding on similar cases use this as a reference point for making judgements.

2. Statutory liability is as a result of the legislation that is passed at the state level or the federal level. The law specifically states the course of action that is to be taken and that needs to be strictly followed.

3. Auditor’s liability under common law results in a civil liability whereas an auditor’s liability under statutory law may result in a civil liability or criminal liability.

4. An Example of auditor’s liability under common law would be the liability arising when the client would sue the auditor for not identifying and discovering a material fraud in the course of the audit carried out by the auditor.

An Example of auditor’s civil liability under the statutory law would be that all the shareholders of a company together file a suit against the auditor for false and wrong information in the prospectus. An Example of auditor’s criminal liability under the statutory law is the liability arising when the federal government itself prosecutes the auditor because he has issued a false and incorrect audit report.