In this chapter, students will be able to understand: Establishing the auditor’s duty, reasonable care and skill, negligence claims, liability to clients - recent cases, liability to third parties - early test - special relationship. | Chapter 4 The Legal Liability of Auditors 4- Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett Establishing the Auditor’s Duty Society imposes a duty to exercise reasonable care and skill in two ways: Contractual (including statutory) relationship Special relationship between two parties 4- Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett Reasonable Care and Skill An auditor must exercise the reasonable care and skill expected of a professional. Requires adherence to professional standards in all aspects of an audit. ‘The professional man owes a duty to exercise that standard of skill and care appropriate to his professional status’ (Caparo, 1990). Learning Objective 1: 4- Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett Negligence Negligence can be classified as any conduct that is careless or unintentional in nature and entails a breach of any contractual duty or duty of care in tort owed to another person or persons. Learning Objective 2: 4- Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett Negligence of claims To be successful in a claim for negligence, a plaintiff must prove that: Duty was owed to the plaintiff by the defendant; A breach of the duty of care (negligent conduct) occurred; Loss or damage was suffered by plaintiff; and A causal relationship existed between the breach of duty by defendant and harm suffered by the plaintiff. 4- Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services | Chapter 4 The Legal Liability of Auditors 4- Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett Establishing the Auditor’s Duty Society imposes a duty to exercise reasonable care and skill in two ways: Contractual (including statutory) relationship Special relationship between two parties 4- Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett Reasonable Care and Skill An auditor must exercise the reasonable care and skill expected of a professional. Requires adherence to professional standards in all aspects of an audit. ‘The professional man owes a duty to exercise that standard of skill and care appropriate to his professional status’ (Caparo, 1990). Learning Objective 1: 4- Copyright 2006 McGraw-Hill Australia Pty .
