Liability of auditors under contract and negligence to clients

Notes

The liability of auditors under contract and negligence to clients

Auditors are liable for professional negligence which an auditor may incur which results in financial loss to a client or third party to whom a duty of care is owed.

It is important to distinguish between:

  • disputes arising from misunderstandings regarding the duties assumed (the expectation gap); and

  • negligence in carrying out agreed terms

The auditors should:

  • Clearly agree the terms of each engagement in an engagement letter and state:

    1)  the responsibilities of the auditor
    2) the responsibilities of the company

  • Refer to the standards of auditing on which the engagement is based (eg. International Standards on Auditing ISA) in their work practices and evidence collection.

Notes