Question

Auditors can be held liable under two classes of law when sued by clients, investors, creditors , or the government. Identify and briefly explain both classes of law.

Answer 1

Auditors can be held liable under two broad categories of law:

- Common Law :-   Case law developed over time by judges who issue legal opinions when deciding a case (the legal principles announced in these cases become precedent for judges deciding similar cases in the future).
• Under Common Law - Auditors can be held civilly, but not criminally, liable.
• The auditor's liability to third parties (e.g., investors and creditors) under common law is complicated by the fact that legal precedent differs by jurisdiction (i.e., state by state).
• Auditors can be held liable to third parties for negligence, gross negligence, and fraud.
• Common law - liability to clients.
• Common law - liability to third parties.

- Statutory Law:- - Written law enacted by the legislative branch of federal and state governments.
• An auditor can be held civilly ($) or criminally liable (Jail).
• Federal statutory law - civil liability (clients & third parties).
• Federal statutory law - criminal liability (government).