Question

1. Although auditors can incur civil liability under various statutes it is far more likely that they will incur liability for negligence under the common law, as the majority of cases against auditors have been in this area. Auditors must be fully aware of the extent of their responsibilities, together with steps they must take to minimize the danger of professional negligence claims. Required (a) Discuss the extent of an auditor's responsibilities to shareholders and others during the course of their normal professional engagement. (b) List six steps which auditors should take to minimize the danger of claims against them for negligent work.

Answer 1

Answer : 1 auditor is responsible to shareholders,outsiders and those charged with governce to °present try and fair view of Financial statements of an enterprise without bias*

2 Following are the advantages of the independent auditor

1) It safeguards the financial interest of persons not associated with the management like directors or shareholders.
2) It acts as a moral check on the employees from committing fraud.
3) It is helpful in settling tax liability, negotiations for loans and for determining purchase consideration for sale/merger.
4) It is also helpful in settling trade or labour disputes for for salary and bonus
5) It helps in detection and minimizing wastages and losses.
6) It ensures maintenance of adequate books as per accounting standards

In order to protect himself and to prove that audit conducted in accordance with the relevant standard on auditing working papers of auditor helps

Working papers are the-
(1) Evidence of the auditor’s basis for a conclusion about the achievement of the overall objective of the auditor; and
(2) Evidence that the audit was planned and performed in accordance with SAs and applicable legal and regulatory requirements.

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