THE AUDITOR’S LIABILITY
CHAPTER OBJECTIVE
1. NEGLIGENCE
2. LIABILITY IN TORT
3. QUALITY CONTROL
1. NEGLIGENCE
Negligence is some act or omission which occurs because the person concerned has failed to exercise the degree of care and skill appropriate to the circumstances.
In simple terms, negligence is the legal term for carelessness.
Auditors may face negligence claims under two distinct branches of law:
1. Law of contract- happen with client
2. Law of tort (negligence)- happen with others such as banks, creditors, shareholders.
2. LIABILITY IN TORT
A tort can be defined as a ‘civil wrong other than that arising under contract law, giving rise to a claim for damages’.
If a person is to successfully make a claim against the auditor in the tort of negligence, three conditions must be satisfied.
1. Duty of care exists: position (three criteria) is that a duty of care is owed to a third party where it is foreseen that a statement will be relied upon — relevant degree of proximity between the parties and it is must be just and reasonable to impose a duty of care.
2. Duty is broken: not exercise a reasonable degree of skill and care.
3. Loss or damage results: person (e.g. bank) making the claim suffered a financial loss as a result of negligence/carless auditing.
3. QUALITY CONTROL
The negligence problem was to improve quality control procedures. When carrying out their duties the auditors must exercise reasonable care and skill. This is required by the accounts’ Rules of Professional Conduct.
All firms should establish and monitor quality control procedure and policies to ensure that audits are conducted in accordance with auditing standards. The policies and procedures should be communicated to all staff, via policy statements, audit manuals and informal briefings. It is important that they are then monitored to ensure that they are implemented.
Source:
- Phnom Penh HR
- Kaplan, FAU