Question

Liability of auditors has evolved over the past 80 years through many changes in legislation brought on by the cycle of fraud over the years and by many court cases that broadened the scope of auditor liability.

Briefly discuss each of the following court cases, describing what level of privity, if any, the plaintiffs had and what impact each case had on auditors' liability.

• Ultramares v. Touche
• Credit Alliance v. Arthur Andersen
• Rusch Factors, Inc. v. Levin
• Rosenblum, Inc. v. Adler

Answer 1

Auditors liability

An auditor responsibility to provide reasonable assurance that a reporting entity is free from meter misstatements, weather due to fraud or error and this the responsibility of auditor's and they must check weather the statement is in compliance with auditor liability also auditor must be aware about the latest legislation rules regarding auditor liability

due to the change in business activity or the way business operate there are many updates over the past year regarding auditor liability. Different countries have different legislation regarding auditor liability.

So,in order to keep up with changing business activity legislation evolved with implementing/amending changes

Types of liability

Criminal Offences

Civil Offences

Criminal Offences

Like an individual/organisation auditors are bound by the laws in the countries in which they operate so under the criminal law auditors could be prosecuted for acts such as fraud and insider trading. this means that auditors could be prosecuted in a criminal court for either knowingly or recklessly an in appropriate audit opinion

so there lies the risk for auditors even after the audit report is submitter they have the risk of reporting in appropriate audit report from an auditor perspective they might feel this is too harsh but if you look from a share holder point of you they need bet reports which is free from material mi statement and fraud and error

if the legislation is not solid auditors might do unfair practices to protect the client /business.

Civil Offences

There are two pieces of civil law 1.) contract law 2.) Law of fort

1.) contract law

under the contract law parties can seek for a breach of contractual obligation which is similar to any profession.

shareholder can seek remedy from an auditor if they fail to comply with the terms of an engagement letter.

2.) law of fort

under the law of fort auditors can be sued for negligence if they breach a duty or care towards a third party

therefore, we can say that this law /auditor liability is there to protect stakeholders or the people who use the audit report and its the responsibility of auditor to be updated with latest legislation regarding the auditor liability

It might feel too harsh for auditor but this job is having higher responsibility to protect or give the right information for the people who uses the auditor report.