Contemporary Audit Issues

Question 1

What are the two gaps that make up the Audit Expectation Gap?

Answer 1

Performance Gap

Reasonableness Gap

Question 2

What factors lead to the performance gap?

Answer 2

• Deficiency of Performance

- Deficiency of Standards

Question 3

What are auditors holding practicing certificates expected to carry?

Answer 3

Professional Indemnity Insurance

Question 4

What perception does the insurance that auditors carry create?

Answer 4

Deep pockets

Question 5

An auditor is liable to compensate a plaintiff if:

Answer 5

• A duty of care is owed
• The audit is negligently performed
• The plaintiff has suffered a loss (and the causal relationship is reasonably foreseeable)
• The loss is quantifiable

Question 6

The negligent auditor may be sued under contract by who?

Answer 6

The Company

Question 7

The negligent auditor may be sued in tort by who?

Answer 7

Third party

Question 8

What are some available precautions to avoid litigation?

Answer 8

• Use engagement letters
• Investigate clients thoroughly
• Comply with professional standards
• Establish and maintain high standards of quality control and insurance cover

Question 9

What concepts may provide some guidance for determining whether a duty of care exists?

Answer 9

Proximity and Foreseeability

Question 10

Who might auditors be liable?

Answer 10

The body of shareholders

The auditee company

Third parties