Question

The legal environment today is not friendly to auditors. Not only clients but also third parties can sue the auditor. Please explain auditor’s legal liability to clients (5 points, at least two meaningful explanations) and third parties (5 points, at least two meaningful explanations).

Answer 1

Legal liability means the auditor should perform his duties carefully without committing any fraud.

The auditor's legal liability to clients are as follows:

i) The auditor should not fail to meet the terms and conditions agreed upon.

ii) The client should not be in loss due to the actions of the auditor.

iii) The auditor should not neglect his duties.

iv) The auditor should follow the accounting standards diligently.

v) The auditor should perform his duty with great care and responsibility.

The auditor's legal liability to third parties are as follows:

i) The auditor should not provide wrong financial statements.

ii) The auditor should not have wrong intentions.

iii) The auditor should not influence directly or indirectly the third party to believe in the wrong financial statements.

iv) There should not be any loss to the third party.

v) The auditor should be just, sincere, moral and straightforward while performing his duties.