Auditor’s Liabilities

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Auditors collect sufficient appropriate audit evidence to provide their opinion on a subject matter. Based on this opinion, users can make various decisions. Therefore, auditors must consider the trust users put in their work. If auditors fail to perform their tasks effectively, they may face legal repercussions. These fall under an auditor’s liabilities.

What are an Auditor’s Liabilities?

An auditor’s liabilities include any obligations that auditors face from their work. Due to various high-profile corporate failures, imposing these obligations have become crucial. Usually, an auditor’s liabilities relate to the risks involved during audit work. These may include inherent, control, and detection risks. Auditor’s liabilities also concern the audit evidence collected during audit engagements.

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An auditor’s liabilities include any legal repercussions that stem from their work. When performing audits, auditors assume these liabilities. Some of these liabilities may come from their profession, while others relate to their obligations toward users and other stakeholders. However, auditors can reduce the chances of these liabilities materializing by ensuring the quality of their work.

What are the types of Auditor’s Liabilities?

An auditor’s liabilities may differ from one jurisdiction to another. On top of that, it may also vary based on the type of audit assignment. Usually, the liability for negligence and contracts may apply to every audit engagement. Auditors may also have other duties which can impose these liabilities, which can fall under the following types.

Civil offenses

Auditors have several obligations to their clients and third parties. Any liabilities that come from these obligations fall under civil offenses. Usually, they fall under the law of tort and contract law. It is also where the liability for negligence exists. The law of tort allows clients and third parties to sue auditors for any negligence during their work.

On top of that, contract law allows parties to hold auditors liable for any breaches of contract. Therefore, if auditors fail to fulfill their contractual rights, shareholders and other parties can sue them. The duties of auditors and the client are usually a part of the audit engagement letter signed by the client beforehand.

Criminal offenses

Most of an auditor’s liabilities fall under civil offenses. However, it does not conclude all the obligations auditors have. As mentioned above, every jurisdiction has laws and regulations for the auditing profession. Usually, these fall under the Companies Act of the country where an auditor operates. These may include provisions for insider trading, non-compliance, falsification of reports, etc.

Criminal offenses are more strict than civil ones. In the case of these offenses, auditors can be persecuted in criminal court. In this case, the auditors will deal with governance bodies rather than the client or its stakeholders.

What is the Disclaimer of Auditor’s Liability?

Auditors can disclaim some liability as a part of their work. However, they must have mentioned this in the contract with the client beforehand. In these cases, auditors can present the agreement as evidence of not being liable. Nonetheless, disclaimers may have limited scope. On top of that, disclaiming liability cannot help auditors in case of criminal offenses.

Conclusion

Auditors have various duties toward other parties that they must consider during their work. These duties can give rise to liabilities for the auditor. Usually, they fall into two types, including civil and criminal offenses. Auditors can also use a disclaimer to limit or reduce their liabilities. However, these may not be effective every time.

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