Question
QUESTION ONE a) Auditors may be liable to shareholders and other parties who may have relied on the financial statements upon which the unditions have expressed an opinion. This is because the auditors are generally taken as owing a "duty of care" those parties and they could be liable in the tort of negligence if they failed that duty Required 1. With reference to the external audit assignment.explain the meaning of the term "duty of care (4 marks) ii. Briefly explain the auditors general responsibility. With regard to the prevention and detection of fraud and errors. (6 marks) III. Briefly explain five possible measures that auditing firms should take in order to avoid legal actions for negligence against them. (10 marks)
Solution
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(255 Votos)
Alessandro
Elite · Tutor por 8 anos
Resposta
I. Duty of Care:The term "duty of care" refers to the legal obligation of auditors to exercise a reasonable level of care and skill in the performance of their audit duties. This duty is owed to shareholders and other parties who rely on the financial statements upon which the auditors have expressed an opinion. The auditors are expected to act with the care, diligence, and skill that a reasonably competent auditor would exercise in similar circumstances. Failure to meet this duty can result in liability for negligence.II. Auditors' General Responsibility:Auditors have a general responsibility to ensure the accuracy and fairness of the financial statements. This includes the prevention and detection of fraud and errors. Auditors are expected to:1. Obtain sufficient and appropriate audit evidence to support their opinions.2. Identify and assess the risks of material misstatement.3. Design and implement appropriate audit procedures to address these risks.4. Report any identified misstatements or uncertainties in the financial statements.5. Maintain professional skepticism and independence throughout the audit process.III. Measures to Avoid Legal Actions for Negligence:To avoid legal actions for negligence, auditing firms should take the following measures:1. Adherence to Professional Standards: Auditors should strictly follow the auditing standards and guidelines set by relevant professional bodies.2. Continuous Training and Education: Auditors should undergo regular training and education to stay updated with the latest auditing techniques and regulations.3. Thorough Documentation: Auditors should maintain detailed and accurate documentation of their audit procedures and findings.4. Risk Assessment: Auditors should conduct thorough risk assessments to identify potential areas of fraud or error.5. Effective Communication: Auditors should maintain open lines of communication with clients and stakeholders to address any concerns or issues promptly.6. Regular Monitoring: Auditors should regularly monitor their audit processes and procedures to ensure compliance with relevant regulations and standards.7. Insurance Coverage: Auditing firms should maintain appropriate insurance coverage to protect against potential legal claims.8. Ethical Conduct: Auditors should adhere to ethical principles and maintain the highest standards of integrity and professionalism.9. Client Relationships: Auditors should establish and maintain strong, professional relationships with clients to foster trust and cooperation.10. Continuous Improvement: Auditing firms should continuously evaluate and improve their audit processes and procedures to enhance the quality of their services.