Question

Question 3 (3%)

Required:

Explain the role that incorporation of auditors and a statutory cap on auditors’ liability have on the limitation of auditors’ liability.

Answer 1

The auditors of financial statements have the responsibility to conduct audits of financial statements in accordance with the applicable auditing standards to express their opinion on the financial statements correctly. The role of auditors does not change with the incorporation of auditors and with the statutory cap on auditors’ liability. The auditors’ liability is limited to the expression of opinion on the financial statements. The incorporation of auditors and a statutory cap on the liability of the auditors have certainly limited the liability of the auditors. Thus, it is the responsibility of the management to prepare and present the financial statements to the auditors thus, in case the management present false or misleading information to the auditors for financial statements then even if the auditors provide inappropriate opinion on the financial statements. However, the auditors must use appropriate auditing tools and techniques to conduct the audit in accordance with the auditing standards. Thus, provided the auditors use appropriate auditing standards and conduct audits efficiently then, the auditors’ liability will not extend beyond expressing opinion on the financial statements.          

Thus, auditors’ liability is limited significantly provided that the auditors conduct audits properly and efficiently. The incorporation of auditors and statutory cap on auditors’ liability have played significant role in limiting the liability of the auditors.