PROFESSIONAL LIABILITY- AUDIT

Question 1

What is the auditor’s responsibilities?

Answer 1

• The overall objective : is duty of care
• Relating to the fraud of FS (but the auditor is not looking for fraud)
• Identify and assessing risk of MM by understanding the company nature’s of business
• The auditors’ responses to assessed risks evidence (criteria)

Question 2

The Auditor qualification

Answer 2

• Power, Rights and Duties
• Appointment
• Re- appointment
• Resignation

Question 3

The FS statement contain the Audit Opinion, who it be reported to?

Answer 3

• Bank
• Shareholders
• Investors

Question 4

Law of Torts

Answer 4

• Tort Law have the way for the person who have do wrongdoings to escape
• Wrong doing might be intentionally and accidently
• The person fell that they have been unfairly treated can claim the money “compensation”

Question 5

There are 3 main types (Law of Torts)

Answer 5

-Intentional Torts
- Negligence
- Strict Liability

Question 6

Two types of liability

Answer 6

Common Law : case law principles (breach of contract & law of tort/ Negligence)
Statutory Law : written law by the authority who make the power to make the law

Question 7

The Common law (causes for Auditor’s liability)

Answer 7

• Liability to clients : violating the client confidentially, failure to report on time, failure to discover the material error, withdrawn from their responsibility without giving the best reasons.
• Liability to 3rd party : 3rd party suffered loss, loss due to the 3rd party rely on the FS but there is misleading, and the auditor know about the misleading.

Question 8

The Statutory Law (causes for Auditor’s liability)

Answer 8

The auditor have been found by the 3rd party their license have been terminated, considered not competence enough

Question 9

The Common Law (breach of Contract)

Answer 9

• The contract is between the intended users (engagement letter)
• Therefore, if the auditor fail to perform based on the engagement letter
• The intended users can sue the auditor

Question 10

The Common Law (Negligence)

Answer 10

• This is when there is no contract, so can sue by negligence
• But, need proof

Question 11

Three types of (Common Law) negligence

Answer 11

• Ordinary negligence : The auditor fail to do the appropriate exercise according to standards
• Gross Negligence : Does do at least the simplest action to obtain the duty of care
• Fraud (Constructive) : The action of the auditor to hide something in order to fall other party and misrepresentation of the material or right fact.

Question 12

Which is better, common law (negligence or breach of contract)

Answer 12

• It is better to have engagement letter
• because sue by negligence need proof
• and, its hard to obtain proof

Question 13

How the Auditor can defense themselves?

Answer 13

• Duty of care (when there is no contract)
• Breach of duty of care (non negligence: need to say auditor have work hard and do the job, negligence : have done the work, but the person don’t want to give the evidence)
• Absence of causal relationship : proof that someone else have do the damages, not the auditor
• Damage : the company have suffered loss/ damage
• Indemnity insurance : to protect the auditor from being sued, the insurance will for the auditor (instead of just the auditor)

Question 14

How to minimize legal liability

Answer 14

• Compliance to Auditing Standards
• Practice Review
• Partner Rotation (Rotate, every 5 years)
• Prohibition or restriction on Audit Services (split between assurance & Advisory)
• Maintain Adequate Professional Liability Insurance
• Quality Control : Investigate the client’s background/ integrity, having the clear understanding the EL term, review AWP