CAT / FIA FAU Syllabus A. Business Environment And Audit Framework - Liability of auditors under contract and negligence to clients - Notes ^{2 / 3}

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.