Audit Is Done to Satisfy the Legal Obligation

When providing information to an auditor, the lawyer may rightly limit himself to the risks of loss that he may have for the client on a substantial basis in the form of legal advice (advice and other attention to matters that are not the subject of a legal dispute by the lawyer in a professional capacity) or legal representation (registered legal advice or other direct professional liability for a matter in dispute). Investigations by some auditors go even further, asking for information on matters of which the lawyer is «aware.» Lawyers are concerned that such a broad request may include information from a variety of sources, including social contacts and third parties, as well as professional commitments, and that the lawyer may be criticized or subject to liability if some of this information is forgotten at the time of the auditor`s request. In contrast, a distorted criminal system is one in which auditors can be held liable for extreme, potentially unlimited damages due to various factors, such as a biased jury. Using an experimental method of economic research, the study examined in this summary examined the behaviour of auditors and auditors in these two criminal systems, while keeping the average penalties incurred by auditors between the two systems constant. Paragraph 7 also recognises that it may be in the client`s interest to protect the information contained in the lawyer`s response to the statutory auditor, if and to the extent possible, against unnecessary disclosure or further use beyond the intended purpose of informing the statutory auditor. For example, the response may contain information that could affect efforts to find a favourable resolution of a pending dispute described in the reply. The requirement of consent to further disclosure or reasonable notice where disclosure may be required by legal proceedings or may be required to defend the audit is intended to give the lawyer the opportunity to consult the client on whether consent should be refused or restricted, or in the case of legal proceedings or the auditor`s defence of the audit, whether action can be taken. and should challenge the need for additional disclosure or protective measures in this regard. It is believed that the proposed twenty-day notice standard would normally be a reasonable minimum period of time for this purpose. For a third party or client to successfully sue an auditor for negligence, it is not enough to present evidence and take legal action.

The applicant must demonstrate the following four criteria: To understand the importance of the auditor`s investigation and the implications of a lawyer`s response, the lawyer must be familiar with the following accounting concepts and requirements set out in FAS 5: || 5The lawyer is not intended to be asked to re-examine all the facts on which he or she was consulted during the examination period in order to determine whether he or she can draw a conclusion as to the likelihood of making an allegation related to any of the facts thus examined. If you`re reading this article, you might wonder who exactly the listeners are responsible for. Can a third party sue an auditor? Or is there a certain category of parties? It is common knowledge that auditors are accountable to two groups of third parties: 1) known users of the financial statements and 2) a limited class of foreseeable users who will rely on the financial statements. The liability of statutory auditors is of growing concern, both in terms of audit quality and the reputation of the profession, as well as in terms of costs to industry and the resulting barriers to competition in the audit market. The information that lawyers can duly provide to the auditor with respect to the above-mentioned issues would include (if applicable) an identification of the procedure or case, the stage of the proceedings, the claims invoked and the position taken by the client. In light of this ethical obligation, the lawyer must take care to fully disclose to his client any trust, secret or valuation to be disclosed to another, including the client`s auditor, and to ensure that the officer or representative of a client company who consents to the disclosure understands and is authorized to do so in the legal consequences of the disclosure: to give the necessary consent. [The auditor may ask the client to inquire about additional matters, such as unpaid or unbilled fees, or certain information about certain contractual obligations of the company, such as guarantees for the indebtedness of others.] Audits are primarily used to determine whether a company`s financial statements are «reasonably disclosed.» In other words, this means that audits do not always cover enough ground to identify cases of fraud. In short, a clean audit does not guarantee that an organization`s accounting is completely exaggerated. Before discussing it, it should be noted that auditors will only be held liable in cases where they have failed in their responsibility to perform work with professional competence and care and to act independently of their clients. There is therefore little argument that they should be liable to the penalties for their own default and that the parties who have suffered should be able to claim adequate compensation.05 Since the events or conditions that should be taken into account in the financial accounting and reporting of disputes, claims and valuations are matters that are directly known and often under the control of the management of a company.

Management is the main source of information on these issues. Therefore, the independent auditor`s litigation, complaint and valuation procedures should include: .07 The audit normally includes certain other procedures that are conducted for different purposes and may also disclose disputes, claims and valuations. Examples of such procedures include: fn3 The responsibilities and functions of the independent auditor also apply to financial statements presented in accordance with a complete accounting basis that deviates from generally accepted accounting principles; References in this section to financial statements presented in accordance with generally accepted accounting principles also include these statements. [Footnote added, in effect for statutory audits for periods beginning on or after 1 January 1997, by The Statement on Auditing Standards No. 78. Footnote renumbered by the publication of Auditing Standards Statement No. 82, February 1997.] Since 2008, auditors have been authorized, under the provisions of the Companies Act, to use limitation of liability agreements (LFAs) to reduce the risk of litigation by customers. LLA are clauses that are incorporated into the terms of a contract and set a cap on the amount of compensation that may be required by the auditor.

These must be approved annually by shareholders and confirmed by judges as «fair and reasonable» when cases arise. NOW, IT HAS BEEN DECIDED that it is desirable and in the public interest for this association to make the following policy statement regarding the reasonable scope of the lawyer`s response to the auditor`s request made by the client at the auditor`s request for information on the matters submitted to the lawyer in the course of his representation of the client, Adopted: Where, in the opinion of the lawyer, considerations within the jurisdiction of his professional judgment affect a particular possibility of damage to the extent necessary for an informed assessment, he may, in appropriate circumstances, communicate to the auditor his view that an adverse outcome is «likely» or «removed», applying the above meanings. In the absence of such judgment, no conclusion shall be drawn that the customer will not prevail.  Despite the advantages of abstract experimental environments, they do not capture all real-world conditions and may therefore be limited in their ability to generalize to real-world conditions. Therefore, future research is needed to determine the extent to which other (non-economic) real-world conditions (e.g., auditor expertise, professionalism, ethics) may interact with the criminal justice system to influence auditor and auditor behaviour. 7A refusal to reply must be distinguished from the impossibility of drawing a conclusion on certain questions of judgment (see paragraph 14). In addition, attorneys outside the United States sometimes follow practices that are different from those contemplated in this section to the extent that proceedings other than those described herein may be required.