Good day miss! INSIGHT: In this video, I have learned that the auditor can only be held legally liable of the financial statements if s/he abandons the auditing standards (negligence/fraud). It was also my first time learning that not only are the clients and third parties involved in the engagement can sue but also foreseen or foreseeable third parties! Such claim is possible all because of the privity doctrine and tort law respectively. Lastly, the video emphasized about the importance of choosing engagements wisely and conforming to the standards to reduce the auditor's risk to legal exposure. Thank you for this series miss! It was surely a great binge-watching experience. Stay safe and healthy always miss!
The relationship between the auditor, client and the third party is covered by the privity doctrine where only the client and the third party can sue the auditor for the breach of contract. They can sue the auditor for ordinary negligence. Foreseen and foreseeable third parties need the tort law to bring legal action and the negligence must be gross negligence or fraud. To minimize legal liability, auditors must exercise due care and is equipped with knowledge about the laws and regulations. Thank you Ms. despite problem that is lurking around, you never fail to make us learn :)
Insight: In this particular video, I have learned another Doctrine which is very new to my senses, the Privity Doctrine. It identifies the auditor, the client, and the third party who is a primary beneficiary of the audit. The legal liability of the auditor binds to the two parties namely the client and the third party beneficiary in which this doctrine empowers them to sue the auditor for legal liability. Thank you, Miss Kristine June Uy, CPA! My Accounting 401 Professor! Thank you for all you hard work despite this pandemic you still exert effort to empower us thru Online Education. I am very sorry for the very late submission of my comments to your RUclips Channel, Miss! Thank you so much for everything! Stay safe, Miss!
I have learned in this video the relationship of auditor not only to its clients but to others that needs his audit. The Privity doctrine that covers the relationship exclusive only to the auditor, client and to its 3rd party beneficiary. In this doctrine the only people to sue the auditor are the client and the 3rd party beneficiary, may it be in the reasons of breach of contract or for its ordinary negligence. On the other hand, the parties foreseen 3rd parties and forceable 3rd parties can bring legal actions against the auditor in the basis of Tort Law in the reasons of gross negligence and fraud. Gross negligence is considered to be as equal as constructive fraud. Only an auditor is said to be liable if there is audit failure, happens only if the auditor abandons the standards of practice. Thank you for this video, Miss 💖
Insights: Aside from the client, there are also other parties in an engagement with an external auditor and that includes third party primary beneficiary, foreseen third parties and foreseeable third parties. The only parties that is covered by the privity doctrine is the • external auditor • client • third party primary beneficiary which they can sue the auditor for breach of contract. However, the foreseen third parties and foreseeable third parties needs the tort law to bring a legal action against an auditor. An auditor can only be held liable if he/she committed an audit failure. So, an auditor cannot be held liable as long as he performs his duty in accordance with the accounting standards, with due care and professional skepticism. Thank you ms for the well presented videos 😘
Hi, Miss! Insight: Negligence. This is one of the reason why an auditor may be held liable for his actions. To avoid this, he/she must be well known of his responsibilities and what he must not do. If lapses still exist, the client and third party primary beneficiary has the power to sue the auditor. Aside from them, foreseen 3rd parties and foreseeable third parties also has thr power but through the tort law. For worse cases to be avoided, the auditor must follow the standards to prevent it and must always keep in mind to provide best service in good faith. Thank you so much for the information you have shared miss. God Bless You always and Lots of love 💖
Insight: Having learned the legal liability of the auditor, it is essential from the beginning until the end of our accountancy education to have a firm foundation for us to be grounded on the standards and perform well in our future field to avoid committing mistakes which may lead to grave consequences we never wanted. Moreover, one's truthful character and due care while working in the industry is also important for the courses undertaken will just be useless if integrity is forsaken and in worst cases result to legal cases against us. Lastly, when one is working as an accountant, it is best to be equipped with knowledge, professional skepticsm, legal counsel and etc to be guarded. Thank you, Miss!
With all the video lessons you've given to us Ms., there are so many things to learn and know about. However, one thing in common with all these videos is its emphasis on the roles and responsibilities of an auditor and the key principles to always follow. This video, again, widened my video of the common things the lessons have introduced so far. Although saying or reading the concepts of obtaining reasonable assurance, material effevts on FS, professional skepticism, etc. may sound easy, but it is with careful execution, integrity and professionalism will an auditor successfully prove his/her capability as an accountant. (I can't help but notice these common things lang Ms. because I think it poses a great duty to future accountants) Thank you for all these lessons, Ms. 😊
Hello, Miss. We appreciate these very informative videos regarding our lessons in A401. Thank you, Miss! Insights: - In our previous discussions, we learned that an auditor can only provide a reasonable assurance, not absolute. This comes with the audit risk that may be involved in an audit engagement. So if an audit client had experience losses in reliance of the audit report, an auditor cannot be held liable for as long as he performs the audit in accordance with the auditing standards and did not commit ordinary negligence. An auditor can only be held liable if there is audit failure which only happens when the auditor abandons the standards of practice. - For an auditor to be found guilty for the charges that may be brought against him, the plaintiff has the burden of proof of the 4 criteria that needs to be proven in court.
Insight: As long as the auditor performs audit in accordance to standards, conduct audits with due care, and exercises professional skepticism, he is not liable. The auditor can be sued in common law and statutory law in the following cases which are the breach of contract, negligence and fraud. Due to privity doctrine the following person who can sue the auditor are the client and the third party primary beneficiary for breach of contract or ordinary negligence. In the person of foreseen third parties and foreseeable third parties they need the tort law to sue against the auditor for legal action in case of gross negligence or fraud. Thank you so much miss for the knowledgeable videos. Keep safe always! God bless!
Insight: This topic is quite interesting because I have truly learnt something out of knowledge and expectations. Especially when the external auditor is only liable to the client and 3rd parties when there is an “audit failure”. It is never substantial to say that the external auditor should be held liable to answer for damages when he or she have conformed with the standards of auditing. Meaning to say, they can only be subject to litigation or charged with fines when there is an evident neglect of their duties and deviated to abide with the standards thereby resulting to material misstatements and subsequently causing loss to the client and third parties. It is also imperative to bear in mind of the requisites of will the auditor can be taken to the court for him to answer the damages done. Thank you for this great video, Miss. 😍
Good day, Miss! This lecture sparked an interest in me since I know someone whose been sued with these issues but won the case in the end. The external auditor is bound by the Privity doctrine with the client and the third parties which are the ones who can sue the auditor in case of breach of contract and/or ordinary negligence. The foreseen and foreseeable parties aren't bound to the previous mentioned doctrine but they can still sue the auditor with the use of the "Tort Law' when there is an evident proof of 1.) Gross negligence; 2.) Fraud; 3.) Lack of minimum care and 4.) Constructive fraud-- the burden of proof however is by the plaintiff following the criteria in order for the auditor to be proven guilty in the court. Thus, it is important to choose the clients wisely and strictly follow the standards of auditing then it's good to say that the auditor did his/her best in providing the best service to the client.
Good evening Miss!! Insight: The video talks about the auditors legal liability. Auditors are important in business because they are responsible for the reliability of financial statements. In this video, I learned that under the privity doctrine, only the client and the third party primary beneficiary can serve as plaintiffs for cases against the auditor for the breach of contract and ordinary negligence. On the other hand, foreseen third parties and foreseeable third parties need a TORT Law for legal action against the auditor - in cases of gross negligence and fraud whether actual or constructive. To sum it all, the auditor must choose their client wisely and follow auditing standards. Also, professional skepticism is a must. Thank you for this informative video, miss. Keep safe ☺️
Good day Ms. Insight: Honestly at first I thought that an auditor will not be liable when engaging in an audit engagement for he/she is only giving reasonable assurance to the intended users but I was wrong and thank you for this Ms! With this video I realized that there is no escape for liabilities even only giving an opinion, a reasonable one. The auditor is liable if he/she committed negligence in performing the audit resulting to real loss and that the clients rely so much on the service. But as long as the auditor did his/her very best to perform the audit in accordance to the standard he or she is not liable.
Hi Miss! thank you for all the video discussions! Insight; The only persons that can sue the auditor for breach of contract and ordinary negligence are those within the privity doctrine which are the clients and the 3rd party primary beneficiary. On the other hand, the forseen 3rd party and foreseeable 3rd party needs the Tort law to bring legal action incomes to gross negligence and fraud. The auditor is only liable if there is an audit failure. An audit failure happens when the auditor does not perform the standards of practice. The auditor cannot be liable if he perform in accordance to the standards.
The video had taught me that there should be a connection between the negligence committed by the auditor and the loss suffered by the plaintiff. Also the auditor must bear in mind that in doing the audit one must follow specified standards as well as be mindful of the after effects or the harm it can input to other people who relied on the FS. Thus he/she should be careful in choosing his/her clients and be dilegent in making the audit. Thank you Miss.
There are 2 sources that can be filed against the auditors; common law- opnion based from courts and statutory law- statutory in nature or passed by legislation. The client and the third primary benefeciaries can sue the auditor for breach of contract and ordinary negligence thru privity doctrine. Foreseen 3rd parties and foreseeable 3rd party can bring up file against the auditor by Tort Law in cases of gross negligence and fraud. 4 instances where a client may brought charges to the auditor unless proven otherwise: 1. Duty of Care 2. Audit Failure 3. Suffered Damages or Loss 4. Reliance to f.s or advices An auditor is not liable as long as he has done his part in good faith. Thank you for your efforts Miss! 😊
Legal liability would not happen as long as the auditor do its job in accordance with the standard. I like this video because it reminds me that the responsibility of the auditor is not only the thing he needs to keep an eye on but also the effect of it to its client and third primary beneficiary and that could extend to the foreseen third parties and foreseeable parties. Thank you for this and for everything, Miss! You've made us approach Accounting 401 in an interesting way. Be safe, Miss. Adelante!
Good day!!! In this video I learned how audit engagement works and also I was able to identify that the client and 3rd party are the primary beneficiary who also can sue the auditor vested by Privity Doctrine. It should be always put in mind not just by the auditor but for all of us to work with integrity and follow the establish standards set by the authority. Thank you, Miss.
Insight: I realized that auditors are important also just like the other profession. They are the one who is responsible for the reliability of financial statements to all the intended users and that they can also be sued which I thought that it could be anyone can sue if there is a breach of contract. But what I have learned from the video is that the person who can sue the auditor are the client and the 3rd party beneficiary under the Doctrine of Privity when there negligence or fraud. In order to avoid liability from the clients, an auditor should know its client first and follow the auditing standards with due care and uphold a professional skepticism at all times. Thank you Miss ♥ Happy Easter !
Insight A key concept here on when an auditor will be liable, is only if there's negligence /gross negligence or fraud in preparing audit reports or doing such audits. As an auditor, we must be reminded and be always guided, by the principles, standards relating to our field work in order for us not just to provide reasonably assured audits to concerned parties/users but also to protect ourselves from harms just like a suit against us for example. Good day miss! Thanks a lot😊
Good day miss! Today's lesson I have learned the legal liabilities of the external auditor. From the question who can sue the auditor down to who lies the burden of proof. The auditor, before starting the engagement must have a contract with the client that lies the connection between the two. In this lesson, I have learned the difference persona of an auditor, his connection to the client, to the 3rd primary beneficiary, foreseen 3rd parties and foreseeable 3rd parties. Under the privity doctrine, the persona between the auditor, client and 3rd party primary beneficiary are at hand. Meaning, the client and the 3rd party primary beneficiary can sue the auditor in case of ordinary negligence and not following with the standards. In the case of the foreseen 3rd parties and foreseeable 3rd parties, they can also sue the auditor but only under the tart law where in this case the auditor have committed gross negligence. And in the court, whoever is the plaintiff, he/she must present the proof that the auditor have committed the wrongdoings. This falls under the basis of duty of care, audit failure, the damage or loss suffered by the plaintiff and the reliance of the FS that brought the plaintiff to cause any damages or losses.
Hi Miss! I never thought that this circumstance do exist hehe. Thanks for this video miss. Here are my insights: Common law and statutory law are the sources for a possible case filed against the auditor. In accordance with the Privity doctrine, only the client and third party primary beneficiary can sue the auditor for breach of contract. The can sue him for ordinary negligence. On the other hand, foreseen and foreseeable third parties need the tort law to sue the auditor and can sue him for reasons of either lack of minimum care, constructive fraud or actual fraud. Your illustration and example miss made me better understand the process of knowing to whom the auditor is legally liable. The auditor can be held liable if he commits audit failure and abandonment of the standards of practice. The four criteria that proven that the auditor is guilty: a. Auditor has duty of care to the plaintiff b. Audit failure c. Plaintiff suffered damage or loss d. Plaintiff relied on the advise or FS There are numerous ways of how the auditor can minimize exposure to legal liability, but the most important are to choose your clients wisely and always follow the standards.
Good day Miss!! Thanks to this video I have a clear idea of how relationships (from client to 3rd parties) work in the roles of plaintiffs. This is essential especially on exercising ones right. Knowing the Auditors legal liability it can compel the auditor to do what is right and this gives the clients the security of compliance or vice versa.
Insights: An auditor must be knowledgeable, well-informed, and diligent. Every omission and commission has a consequences. Thank you for the learnings Miss. I am also well-inspired to be an Auditor someday miss. Thank you for the inspiration and knowledge. Goodluck and God bless you always miss.
Good day miss! :) Insight: I have learned that the liability of the auditor arises when there is an audit failure or when the auditor abandons or neglects the standards of practice. Also, the individuals who can sue the auditor when there is a breach of contract are the client and the third party primary beneficiaries due to the Privity Doctrine. Moreover, the foreseen and foreseeable third parties can also sue the auditor through the TORT Law if there is an alleged injury due to gross negligence or fraud. However, there are still ways that the auditor can evade litigation and the most significant of all is to follow the standards. Thank you miss! :)
Good day miss! This video made it clear who and how are the parties involved. Their role in the story also hints their rights and the law that protects them in case the auditor is negligent. Thinking about it, an auditor's work extends to many people's interests and along with it is the liability he must answer in case conditions aren't met. This might feel burdensome but as long as an auditor work with the standards, due care and professional skepticism in tact, one can be confident that the work has been dilligent. Being aware of your responsibility and liability to whom is helpful in better understanding your line of work and carry out utmost professionalism. Thank You!
Good day miss! Insights: I’ve learned that the best thing for the auditor to minimize exposure to legal liability is to choose the clients well, utilize engagement letters, exercise due care and professional skeptism, and seek legal counsel. The auditor must also do his job according to the auditing standard and due care to avoid liability to the client, primary, foreseen, and foreseeable third parties.
All in all, thank you for the effort of still continuing to teach us about the subject miss. Every video that you uploaded makes me more interested in the course. Thank you miss! We appreciate all your efforts a lot. God bless😊 This may not be related to the video but I would like to leave you a quote "If you do what you've always done, you'll get what you've always gotten" -Tony Robbins Thank you so much miss!❤
I learned that there exists, between the parties, a distinction on their legal rights against an auditor. The client and third party primary beneficiary have the privity doctrine which gives them the ONLY right to sue the auditor for breach of contract including ordinary negligence. Meanwhile, both foreseen and forseeable third parties need the tort law for them to be able to bring a legal action against the auditor. It also came as shock to me how ,although without intent, recklessness in doing audit can be a ground to construe constructive fraud which can then be an equivalent to gross negligence. Thank you, Miss!
Hi Miss! Insight: I learned that only the client and the third party primary beneficiary van sue the auditor for breach of contract or ordinary neglience however the other third parties can only use the tort law to bring legal action against the audito for gross negligence and fraud. I also learned that the liability of the auditor depends if the auditor throughly followed the standards. If he or she did not follow the standards then the auditor is liable however of the auditor followed the standards but the FS was found to have misstatement then the auditor is not liable. The auditor can minimize his exposure to legal liability by choosing the clients well following the quality control standards, the PSA, Code of Ethics, extreme care of clients with financial difficulties and more. Thank you miss!!
Parties covered by the privity doctrine such as the client and the 3rd party primary benificiary are the only one who can sue the auditor for breach of contract or ordinary negligence. Foreseen 3rd parties and Foreseeable 3rd parties need the TORT Law to bring legal action against an auditor in cases of gross negligence and fraud whether actual or constructive. An auditor cannot be held liable for as long as he performs his audit in accordance with the auditing standards. Thank you, Miss for this video! Pening, AK TTh 9:00-12:00 nn
Good day miss! Because of this video, my thoughts regarding the auditor's legal liability was clarified and added. • The relationship between the auditor, client, and third person primary beneficiary is covered by Privity Doctrine. It means that only the client and 3rd person primary beneficiary can sue the auditor for breach of contract and ordinary negligence. • The other 3rd persons needs Tort Law to enforce legal actions against injury or losses suffered due to gross negligence and fraud. •To minimize the exposure to legal liability, an auditor should know the client first before accepting the engagement, perform the audit in accordance with the relevant standards and exercise professional skepticism. Thank you!
Good Day, Miss!! INSIGHT: This video added to my knowledge about the elements of an assurance engagement. Aside from being the primary three parties of an assurance engagement, the Practitioner, Responsible Party, and the Intended User are also covered with the Privity Doctrine thus making two of them (client and primary beneficiary) as the only parties that can sue the Auditor for a breach of contract, this is so because they are the ones directly involved in the contract entered (Assurance Engagement). The other parties, on the other hand, can also sue the Auditor by application of Tort Law. With this, if a foreseen third party, or a foreseeable third party, or both, suffered damages because of the Auditor's negligence, they can remedied by suing the Auditor for damages. As always, thank you for gracing us with learnings amidst this hard times Miss. God bless and stay safe always!
Good day, Miss✨ This video clearly explained that not all cases of loss will the auditor be legally liable. An auditor can only be held liable if he performed his duty neglecting the standards that resulted to losses. And so, as long as the auditor complied with the standards and does his job according to it but still resulted to losses, the auditor cannot be held liable. Talking about legal liability, under the privity doctrine, only the client and the 3rd party primary beneficiary can sue the auditor for breach of contract. However, under the Tort Law, other parties can also sue the auditor on the grounds of gross negligence and fraud. THANK YOU, MISS!!!✨
Hi miss. Insight: The video itself is very comprehensive but its just that there are too many unfamiliar terms miss. It was well explained but after watching the whole video, I got a bit confused. Three things caught my attention though and these are the PRIVITY DOCTRINE, TORT LAW and the PREVENTION OF LEGAL LIABILITY. I believe all of which will be very useful as we move forward towards our goal. Also, the examples given are very understandable (as always). That is all miss. Thank you!
The video itself is very informative. It really helped me envisage the relationship of the parties in an audit engagement. There are two frameworks or shall I call "basis" as to who are able to sue the auditor for breach of contract and negligence - privity doctrine and tort law. Through these basis, I am also able to properly determine who are directly and indirectly affected by the auditor's liability. Additionally, I have perceived that the auditor's opinion is indeed essential to the different parties as this can either bring the parties into positive or negative outcomes. He/She should also put emphasis on the PSA when performing audit. Lastly, such exposure of liability to the auditor can be reduced (as always reminded from the previous videos) through the virtues of integrity, reliability, professional skepticism and objectivity.
Good Evening Miss! Insight: Based on what has been discussed, only the client and the third party primary beneficiary can sue or can demand legal proceeding for breach of contract from the auditor as they are protected by the privity doctrine. On the other hand, the foreseen and foreseeable third parties will have to rely or depend on the Tort Law to bring legal action against the auditor- this basically applies when large injury is acquired either by gross negligence or fraud in audit, be it actual or constructive. Conclusively, an auditor becomes liable when there is an audit failure- which to say, happens only when an auditor abandons the standard of practice or should it be, perform less than what has been expected of them as professionals. Therefore, he does not become liable when he follows or accomplishes his duty in accordance with the auditing standards. Thank you Miss!
Good day, Miss! INSIGHT: Negligence and compliance to the auditing standards are factors that determine whether an auditor is legally liable or not. The burden of proof lies on the plaintiff. Thank you so much for all the videos, Miss! Your efforts are highly appreciated 💜 The work ahead of us (if makalahutay man jud gani 😅) may seem to be very challenging and difficult but you made it look so exciting and a job that would surely give us a meaningful experience. Once again, thank you Miss and God bless! Stay safe and healthy sad Miss!
Hello, Miss! External auditor really plays a pivotal role for providing reasonable assurance and keeping the FS fairly presented. Like any other professionals, auditors could be prosecuted in a criminal court for either knowingly or recklessly issuing an inappropriate audit opinion. That is why he is expected to finish his job in good faith knowing that they are liable for negligence or fraud. Under the Privity Doctrine, auditors can be sued only by client entity and the third party primary beneficiary due to breach of contract or ordinary negligence. On the other hand, foreseen 3rd party and foreseeable 3rd party need the Law of Torts to bring a legal action against the auditor due to gross negligence or fraud whether actual or constructive. Also, there are 4 criteria of the court for the auditor to be proven guilty of the charges brought against him: auditor has due care to the plaintiff, audit failure, plaintiff suffered damage or REAL loss and plaintiff relied on the FS advise. With this, auditor can minimize his exposure to legal liability by conducting the audit with due care, follow auditing standards, exercise professional skepticism, choosing his client wisely, use of engagement letters and seek legal counsel. Thank you for all these videos miss. Keep safe and adelante!
Good day, Miss 😁 Insight: In this video Miss, I've learned how the auditor can be held legally liable to his or her client. I know none of this before actually but what is really must remember of the auditor is that never ever disregard or dispatch the auditing standards as it is a responsibility of the auditor, otherwise he or she can be held lianle by his or clients. Moreover, if the auditor is being sued, he or she is proven guilty if the auditor has a duty of care to the plaintiff, when the auditor did not follow the standards, the plaintiff has suffered damages or losses and lastly if the plaintiff or the clients relied on the financial statements or advise from the auditor. Hence, it is really important for the auditor to perform the engagement with his or her full ability as an auditor. Thank you Miss 😁😁
Auditor's responsiblity as discussed in the previous videos includes obtaining reasonable assurance, obtaining a general understanding about the legal and regulatory framework and obtaining sufficient and appropriate evidence of noncompliance, and there are certain cases where they can be held liable if those mentioned responsibilities is not obtained. There are two sources of law where they can be held liable, first is the common law which is written opinion of prior courts, second is the statutory law which is by legislation. I've also learned about the privity doctrine which says that it cannot confer rights and impose obligations to just any person, it identifies the client and the third party primary beneficiary as either or both possible plaintiff.
Insight: Auditors cannot be sued by just anyone for breach of contract. Only the client and the third party primary beneficiary can sue the auditor for breach of contract under the Privity Doctrine. Auditors can lessen their exposure to legal liability by choosing their clients well. Following the standards is also a great help for them to never go wrong. Thank you Miss!
Good day, Miss. Here are my points to ponder upon watching the 8-minute lecture above: 1. Only the client and the primary beneficiary can sue the auditor for breach of contract for ordinary negligence because they are privy to the contract 2. Foreseen 3rd parties and foreseeable 3rd parties need the TORT LAW to bring legal actions against an auditor, in cases of GROSS NEGLIGENCE. 3. The auditor that cannot be held liable for as long as he perform his audit in accordance with the auditing standards. 4. Criteria for the audior to be proven guilty before the court: a. duty of care to the plaintiff b. audit failure c. plaintiff suffered damage or real loss d. reliance on advise given by the auditor 5. Auditors can minimize their legal liability through: a. choosing clients well b. use engagement letters c. compliance with the standards d. a professional liability insurance coverage or seek legal counsel. *Magdaraog, JA
Good day Ms! Today, I have learned that the contractual relationship between the auditor, client and the third party is covered under the privity doctrine which gives them the option to sue or carry lawful activities to the auditor in the event that he have breached the contract or neglected to practice sensible consideration in the execution of his administrations which includes the confidentiality doctrine. There are additionally 4 criterias to qualify whether the auditor submit breach of contract, (1) the auditor has duty of care to the plaintiff (2) audit failure (3) plaintiff has suffered real damage or loss and not merely opportunity loss (4) plaintiff relied on the FS or advise of the auditor. There are likewise ways for auditors to lessen or maintain a strategic distance from the introduction to lawful obligation like picking its customers well , having legal counsel and most particularly observing the fitting guidelines that follows the standard.
Good Morning Miss! Insights: I have learned that the contractual agreement or relationship between the auditor, client and third party primary beneficiary is covered under the privity doctrine which gives them the right to sue or bring legal actions to the auditor if he have breached the contract or failed to exercise reasonable care in the execution of his services which includes the abandonment of auditing standards and the confidentiality doctrine. The auditor will also extend its legal liability to forseen and forseeable third parties which is covered under the tort law if he commits gross negligence or fraud in his audit either actual or constructive. There are also 4 criterias to qualify whether or not the auditor commit breach of contract and plead guilty of the charges brought against him by the plaintiff which is the party that has the burden of proof and these should be established in court to give validity that there is really a causal relation between the auditors negligence and plaintiff loss: (1) the auditor has duty of care to the plaintiff (2) audit failure (3) plaintiff has suffered real damage or loss and not merely opportunity loss (4) plaintiff relied on the FS or advise of the auditor. There are also ways for auditors to reduce or avoid the exposure to legal liability like choosing its clients well , having legal counsel and most especially following the appropriate standards.
Happy Quarantine Miss! Insights: (1)Only the client and third party primary beneficiary can sue the external auditor for breach of contract because of the privity doctrine. However, foreseen and foreseeable third parties can still file legal action against the external auditor with the guidance of the tort law. (2)In some courts, gross negligence of an auditor is deemed to be a form of constructive fraud despite having no intent. (3)An auditor cannot be held liable even if the client and other persons of interest suffered losses if the former will just act and follow the auditing standards.
Insight: Under the privity doctrine, the client and the primary beneficiary can held the auditor liable in cases where there is ordinary negligence. However, if it's the 3rd parties, it must be gross negligence or fraud. Again, the auditor's responsibility is to give reasonable assurance. So long as the auditor exercised due care, professional skepticism and followed the standards, exposure to legal liability can be minimized. Thank you miss for all your efforts in making these videos. God bless and stay safe po. 😊
Hi Miss here is my summarized understanding gain after watching this video: In an engagement, it is not only the client and the auditors that are involved throughout. Aside from them, there are Third parties which may be segregated as: a. Primary Beneficiary which is the only third parties covered in the Privity Doctrine along with the client and the auditor having a contractual relationship and because of this relationship, the client and the third party primary beneficiary has the power to sue the auditor for breach, negligence and failure to exercise reasonable care throughout his/her service. b. Foreseen; and c. Foreseeable. Indeed, auditors can also be liable for any misconduct and incompetence. That is why, to minimize the burden of these liabilities the auditor is bound to: a. choose good clients b. follow audit standards c. utilize engegement letters; and d. seek legal remedies Thank you miss.
Good Morning Miss! These are my gathered insights in this video: It is very important to take note the primary responsibility of the auditor where he or she must obtain reasonable assurance in which the financial statements of the entity, taken as a whole, are free from material misstatements whether caused by fraud or error. Meaning that the auditors are the ones responsible in securing the reliability and accurateness of the financial statements that will be used by the client and other third parties. But despite of the skills and training that these auditors took to make themselves capable, there will always be risks of negligence on their part and might curtail the transparency and the presentation of facts in the financial statements. That is why it is important for the Clients and other parties to set a safety net for them to be able to secure the auditors diligence in performing his or her duties. There are two cases that can be filed against the auditor, and these are the Common law and the statutory law. Before the engagement of the Client and the external auditor, both parties shall sign a contract which is in a form of and engagement letter. The contractual relationship that exist between the client and auditor creates a Privity of relationship that renders the right to sue the external auditor for breach of contract in the bases of ordinary negligence or failure to exercise reasonable care in performing his/her services required for the engagement. In some cases, a primary beneficiary of the FS which is considered as a third party can also be included in the Privity of relationship which shall provide a right for such third person to sue the auditor for ordinary negligence. Third parties such as Foreseen 3rd parties which are not specified in the contract but known by the auditor, and the Foreseeable 3rd parties which have a reasonable need to rely on the FS (Potential Investors and Bond holders) need the TORT LAW to bring legal action against an auditor. They can invoke such action if there's a possibility of injury due to Gross Negligence (Lack of minimum care) or sometimes equitable to constructive fraud because of the recklessness of his/her act, even without any intent of performing such. They can also use TORT LAW to bring legal actions against an auditor in cases of Fraud (constructive or actual). To sum it up, the auditor can only have a legal liability in cases where he or she is ordinarily negligent of his responsibilities in the engagement or fails to comply or exercise reasonable care in performing services.
Insight: In an engagement there could be many personalities present that has their own responsibilities and as well as their legal liabilities. An auditor must possess the needed/required skills to complete their work has duty to employ the skills with reasonable care and diligence. The auditor must complete his duty with integrity. Covered by the Privity Doctrine(Breach of Contract)are the parties presentre the client and the third party primary beneficiary can sue the auditor as they have contract with the auditor. The foreseen 3rd parties and the foreseeable 3rd parties would need the Tort Law in order to sue the auditor. Thank you kaayo, Miss!🙌💕
Insight: This video helped me a lot in visualizing how the audit engagement is entered into by the parties involved, and who are these parties involved, directly or indirectly. The auditor can be liable to a lot of people if the audit is not performed well. Thus, the auditor must at all times conduct the audit in accordance with established standards, rules and regulations.
Insight: •There are other persons involved in an engagement apart from the External Auditor and the Client. There could be a Third Party Primary Beneficiary, Foreseen Third Parties, and Foreseaable Third Parties. The external auditor, client, and third party primary beneficiary have a contractual relationship and they are covered by the Privity Doctrine. For this reason, only the client and the third party primary beneficiary can sue the External Auditor for breach of contract, ordinary negligence, and the failure to exercise reasonable care in the performance of audit services. The foreseen and foreseeable Third Parties do not have the same rights with the previous two. •An Auditor can minimize the burden of liability by choosing good clients, utilizing engagement letters to avoid/ minimize exposure, and following audit standards and seeking remedies. Thank you so much, Miss! Your effort in making these videos is highly appreciated. 🥰
Hi Miss! This video made me realize the extent of an auditor's role when it comes to an audit engagement. The auditor’s responsibility extends not only to his client and the third party primary beneficiary, but also to the foreseen and foreseeable third parties. This is then how I learned that apart from the client and the auditor, there are still other parties involved in an engagement. The video also highlights the rights of those people involved in an engagement. To reiterate, only the client and the third party beneficiary can sue the auditor for breach of contract and absence of reasonable care in performing his/her duty. The foreseen and foreseeable third parties, on the other hand, can sue the auditor on the grounds of gross negligence and fraud, whether actual or constructive. The video also made it clear that for as long as the auditor performs his/her duty in accordance with the auditing standards, he/she cannot be held liable. Lastly, choosing your clients very well, following the auditing standards, and keeping due care and professional skepticism intact, one can say that the engagement has been performed diligently. Miss, thank you so much for all your hardwork. May you continue to inspire aspiring CPAs like us. God bless you miss and stay safe. 😊
The auditor and client is bound by an agreement emboded in a contract. However when an auditor breaches the contract he can be sued by the client or by a 3rd party primary beneficiary because the three identities are governed by privity doctrine. In addition, when the auditor commits gross negligence or fraud he can be sued under the doctrine or tort law by the foreseen and foreseeable 3rd parties. Thus, the job of an external auditor is crucial that when he commits the said omissions he shall be faced with charges. He must always follow the Code of Ethis for External auditors, the standard and the law. Thank you so much miss. Although this pandemic is only around the corner, you never fail teach us. Keep safe miss. Adelante🙂❤️
Hi Miss! Insights: The primary job of an Auditor is to provide a reasonable assurance to clients that the FS is free from material misstatement. An Auditor is expected to possess skills like professional skepticism in performing the job. Mistake is inevitable in every job but if an Auditor doesn’t perform his/her job by failing to follow the standards and through his/her negligence, legal responsibilities follows. Once an Auditor breach a contract under the Privity Doctrine, the client and the party’s primary beneficiary can sue the Auditor. In addition, there are also Foreseen third party and Foreseeable third party who can sue the auditor for gross negligence and fraud. Therefore, the Auditor must know and follow the standards and perform the job with due diligence. Thank You, Miss! and Keep Safe Always
Good day miss😊 This video answered well on my questions before. I wondered what are the auditor's actions that may cause him to be liable. The auditor can only be held liable if there is audit failure. *Audit failure* is when the auditor has not followed the audit standards. The auditor cannot be liable if the audit report caused losses when the auditor has accordingly followed the PSAs. I also learned in this topic of who are those that can sue the auditor/plaintiffs. The *client* and *3rd party beneficiary* ( _privity_ ) are the *only ones* that can sue auditor because of _breach of contract_ and _ordinary negligence_ . The *foreseen 3rd parties* and *forseen 3rd parties* need the *TORT LAW* to sue the auditor, because of _gross negligence_ and _fraud_ . The *criteria* that has to be proven of an auditor/plaintiff: 1. auditor has duty of care to the plaintiff 2. audit failure 3. plaintiff suffered damage or loss 4. plaintiff relied on the FS or advice To minimize exposure to legal liability, an auditor should *choose clients well* , *utilize engagement letter* , *follow audit standards* and *seek other remedies* such as professional liability insurance & legal counsel.
Good day, Miss! Insight: Under the privity doctrine, the auditor can be sued for breach of contract and ordinary negligence by the client and third party primary beneficiary only. The Tort Law is required in cases where the foreseen and foreseeable third parties want to bring legal actions against the auditor for gross negligence and fraud (either actual or constructive). The auditor can be held liable if there is audit failure and this happens when the auditor didn't act in accordance to the standards.
Hi Miss💙 Insight: Contractual relationship exists between the auditor and the client and as well as to the 3rd party primary beneficiary. These parties are being covered by the Privity Doctrine and only the client and the 3rd party primary beneficiary can sue the auditor for breach of contract and ordinary negligence. Aside from this, Tort law are needed by the foreseen 3rd parties and foreseeable 3rd parties to bring legal actions against the auditor for gross negligence and fraud(either constructive or actual). On the other hand, there are 4 criterias to prove that auditor is guilty: -Auditor has duty of care to the plaintiff( client/3rd party primary beneficiary/ forseen 3rd parties/ foreseeable third parties) -Audit Failure because of deficient auditor conduct -Plaintiff suffered damage or loss(real loss) -Plaintiff relied on the FS or advise( there must be causal connection between the auditor's negligence and the plaintiff's loss) Thus, auditors should always be careful on their duties since good operations in their management is always in their hands. Thank you Miss😊
Good Day,Miss! The privity doctrine covered only by the client and third party who are the primary beneficiary which gives them only the right to sue the auditor for breach of contract or ordinary negligence, whereas the foreseen and foreseeable third parties are under the tort law which brings legal action against the auditor. However, to maintain the auditors legal liability, he should carefully choose his client that includes investigating his client, keep away from company that are inclined to legal action. Additionally, he should adhere to the standards established by the council to keep away from conflicts in the near future. Thank you, Miss! & God Bless
Good day Miss! I have learned that only those covered by the privity doctrine--specifically the client and the 3rd party primary beneficiary--can sue the auditor for breach of contract and ordinary negligence. If the foreseen 3rd parties and foreseeable 3rd party want to sue the auditor for reasons of gross negligence and constructive fraud, they can, but would need the tort law to bring a legal action to the court. For as long as the auditor exercises professional skepticism and performs his duty in accordance with the auditing standards, he would not be liable even if the company suffered losses due to reliance to the audit report since, as already mentioned multiple times in previous videos, the auditor only provides a reasonable assurance to its clients. In order for the accused auditor to be proven guilty of the case brought against him, the following criteria are should be present: (1) The auditor has a duty of care to the plaintiff, (2) there is audit failure, (3) plaintiff habe suffered damage or loss--real loss as opposed to opportunity loss, and (4) the plaintiff relied on the FS or the advice given to him/her by the auditor. The video also answered the question of "how will the auditor minimize exposure to legal liability," and these are to choose their clients well, use engagement letters, perform their duty in accordance to the audit standards, practice professional skeptism, and by seeking legal counsel. God bless Miss!
INSIGHT: The only persons that can sue the auditor for instances like breach of contract because of ordinary negligence such as that of violating the acts of confidentiality are those that are covered by the privity doctrine mainly the client and the primary beneficiary, which happens to be the third party. The tort law is applicable to those foreseen 3rd parties and foreseeable 3rd parties who wanted to take legal action against the auditor for reasons such as lack of minimum care in performing services and those that are accounted to fraud. Thank you for your hardwork miss
YEY! Thank you for all the videos miss. I've learned a lot hehe bisan dili kaayo tag.as ako mga comment hehehe :). Thank you for all the effort miss. Very appreciated. God bless and keep safe.
This lecture made it clear who are the parties that are affected if the auditor doesn't do his/her job properly and what can these affected parties do if it does happen. Since the auditor, client and 3rd party primary beneficiary have a contractual relationship, they can sue the auditor for breach of contract or for ordinary negligence. The foreseen 3rd parties and foreseeable 3rd parties need the tort law to sue the auditor for gross negligence or fraud (constructive/actual). And so it is essential for the auditor to act diligently and with accord to the standards to avoid legal liability.
Hi miss This video helped me understand how audit engagement works, it gave clear information about who are involved, from the auditor down to the client and other parties involved which are not the ones primarily affected with the engagement. There are a lot of peope relying to what the auditor has to say, they may be affected direclty or indirectly that's why the auditor must really do his job properly for he may be liable to these people if something regarding his work happens. But it must be noted that, only the client and the third party primary beneficiary can sue the auditor for breach of contract and ordinary negligence. Other parties not mentioned can go after tort law if they have some problem against the auditor. It is also important to consider that the auditor can only provide reasonable assurance and consider audit risk to see if the auditor is liable. He will only be liable if he did abandon the standards of practice which led to audit failure.
In this video, I've realized how crucial the work of an auditor is. That is why the work of an auditor must be done with great observation, care, and understanding (That's why there are 'suggested' procedures and guidelines provided to assist the auditors). I can really say that the auditors carry a great load on their shoulders because people tend to rely on their reports and judgment and if they fail with their work, there is a high chance of substantial losses to the creditors, investors and even to the 3rd party primary beneficary. With this, in case the auditor committed a gross niglegence then the client and the 3rd party primary beneficiary may sue the auditor.
Good Evening Miss! Insights: It is crucial for an auditor to perform his obligations to his client the best and right way that he can ,that should always be in line with the auditing standards, in order to lessen his legal exposure. Now, referring to who brings out legal exposure to auditors are those parties pertaining to the client and the third party primary beneficiary are the ones who have the right to sue the external auditor for breach of contract due to ordinary negligence because the auditor is bound by a contract to these parties referred to and since they are covered by the Privity Doctrine. And to those foreseen and foreseeable third parties, they can take legal actions to the external auditor for instances that involve negligence, specifically gross negligence, and cases of fraud acted out by an auditor, in which, these instances pertain to be dealt under the Tort Law.
Hi miss, Good Day! Insights: Under the privity doctrine, only the client and third party primary benficiary can sue the auditor for the breach of contract and ordinary negligence whereas, foreseen and foreseeable third parties need TORT LAW to bring legal action against the auditor. Tort law invoked in cases when there is alleged injury due to negligence , gross negligence and fraud. In the case of FGH corp., the company did not make known to the auditor that the FS was used for obtaining a loan from a bank. Furthermore, the external auditor failed to meet the standards of the audit and signed it without the conduct of actual audit, thus, the auditor, is liable for ordinary negligence to the client and the bank of funds. He is also liable to the investors who suffered loss(need tort law). Therefore , to minimize legal liability the following are some of its measures: a) auditor must perform an audit in accordance with the standards b) choose and investigate client wisely c) follow the CODE OF ETHICS THANK YOU MISS!
Good Day Miss! Today I’ve learned that the possible sources of law for a filed case against an auditor are the common and statutory law. It is also important to know the different personalities who can be the plaintiffs and their relationship with the auditor for us to differentiate when can they bring legal action against an auditor. The auditor’s contractual relationship with the client and the third party primary beneficiary being governed by privity doctrine, allows them to bring legal action to the auditor for breach of contract and ordinary negligence. On the other hand, the foreseen and foreseeable third parties having no privity relationship with the auditor, can only bring legal action and that is when the auditor made a gross negligence or fraud on his audit. The auditor to be proven guilty must have fulfilled the four criteria which are; duty of care towards the plaintiff, deficient conduct that led to audit failure, the plaintiff obtained damages and real losses and they relied on the FS. To limit an auditor’s exposure with these legal liability, a number of things can be done such as choosing the clients well, utilize engagement letter, follow audit standards and others. This only means that being an auditor is not that easy peasy, but as long as you as an auditor perform your audit according to the auditing standards, with due care along with the exercise of professional skepticism then you need not to worry. Thankyou for the video miss!
Insight: The auditor can be held legally liable in case of audit failure that's why it is very important for an auditor to perform the audit with due care, in accordance with the standards, and apply professional skepticism to avoid liability. In the privity doctrine only the client and the third party primary beneficiary can sue the auditor for breach of contract due to ordinary negligence or for not being able to give reasonable assurance. Thank you, Miss! God bless 💕
Good evening Miss 😊 Insight: The privity doctrine covers the relationship of the auditor, the client, and the third party primary beneficiary where they can sue the auditor in case of ordinary negligence and breach of contract. In order for the auditor to be sued, there must be negligence, the auditor has a duty of care, audit failure, the plaintiff suffered damages or loss and the plaintiff relied on the financial statement and the advise given by the auditor. And the plaintiff has given the burden of the proof for that. The auditor can prevent or avoid these legal liabilities by performing the audit in accordance with the correct standards. Also, by choosing the clients that has strong integrity and is reliable. Thank you miss!
Hi, Miss :) There are two sources of law which can be filed against an auditor, common law and statutory law. Who can sue the auditor? It is important to consider the different persons involved in an engagement. 1. External Auditor 2. Client 3. Third Party Primary Beneficiary 4. Foreseen Third Parties 5. Foreseeable Third Parties The first three (external auditor, client, and third party primary beneficiary) have a contractual relationship and they are covered by the privity doctrine. Because of this, only the client and the third party primary beneficiary can sue the external auditor for breach of contract, ordinary negligence, and the failure to exercise reasonable care in the performance of audit services. Both the foreseen and the foreseeable third parties do not have the same rights with the client and the third party primary beneficiary because they are not privy to the contract. They can only bring legal action when the auditor allegedly caused an injury due to gross negligence or fraud (actual or constructive) in accordance with the tort law. NOTE: An auditor cannot be held liable if he performed in accordance with the auditing standards. (Question, Miss, is this true all the time or are there any exceptions? Hehe thank you) The Four Criteria-Proofs that an auditor is guilty 1. Auditor has a duty to the plaintiff 2. Deficient auditor conduct that lead to audit failure 3. Plaintiff incurred damages and losses (real loss, not opportunity) 4. Reliance on the financial statements where the advice is taken Burden of Proof: Plaintiff NOTE: It must be established in court that there is a causal connection between the auditor’s negligence and the plaintiff’s losses. How can an auditor minimize the burden of liability? 1. Choosing the clients well. 2. Utilizing engagement letters to avoid/minimize exposure. 3. Following the audit standards and seeking other remedies (i.e. legal counsel) Thank you so much, Miss, for everything. May God bless you and your family always. Stay safe and stay healthy ^^
Jane Frances Capuyan Before, I only knew one thing that will make an audtor liable, that is when the auditor conspired with the treasurer to make fraud. Due to this video, I was introduced to what we call as Audit failure that will cause the auditor to face legal liability, then there is auditor negligence, etc. As an auditor it’s our responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. There are many factors to consider for an auditor to provide and give it’s very best in his/her service. In the long run, auditor may have audit failure that will cause legal liability, common law or statutory law. But before that, we have to remember always that the auditor has to follow the standards in order not to face audit failure. As we all know, the auditor can be held liable if and only if there is an Audit failure. So what is audit failure? Audit failure occurs when an auditor deviates from the applicable professional standards in such a way that the opinion contained in his or her audit report is false. Audit failures are frequently associated with inadequate auditor training, failure to exercise sufficient professional skepticism in evaluating management representations, not sufficiently evaluating client valuation estimates, essentially not engaging in any auditing activities at all, and/or creating inadequate audit documentation. Also, clients can sue auditors if there is a breach of contract between the two entities. Users may sue auditors if the latter fails to identify a material error that ultimately ends up influencing the users' investment decisions. Then, there is Privity Doctrine, a common law principle which provides that a contract cannot confer rights or impose obligations upon any person who is not a party to the contract. The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such. Tort Law- A tort, in common law jurisdiction, is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits a tortious act. It can include the intentional infliction of emotional distress, negligence, financial losses, injuries, invasion of privacy and many other things. They say, A deal built on trust is easily broken, but a deal built on weakness is hard to get rid of. At the end of the day, you have to remind yourself of the oath, that you are an auditor, guardian of governance, who commits to the code of ethics and uphold the standards. Thank you, Adelante!
Good day, Ms! I've learned that in case the auditor would not conduct the audit in accordance with the auditing standards (i.e. ordinary negligence), s/he may be sued primarily by those s/he contracted with by virtue of the privity doctrine, and these are the client and third party beneficiary. Moreover, the auditor's legal liability extends to the foreseen and foreseeable third parties should the auditor commit gross negligence or fraud under the Tort Law. However, the burden of proof for the auditor to be proven guilty in such cases lies to the plaintiff, and the requisites to consider are (1) Auditor has a duty of care to the plaintiff, (2) there's audit failure, (3) the plaintiff suffered damage or loss, and (4) the plaintiff relied on the FS or advise. That being said, the auditor's work is indeed as valuable as his/her reputation as a Professional Accountant. Nonetheless, there are ways to at least minimize his/her exposure to legal liability such as obtaining a legal counsel, exercising professional skepticisim, getting a professional liability insurance, but most especially, choosing extensively who among the potential clients to accept, as this is the very root cause of every possible danger in providing an assurance engagement. Thank you so much for these informational videos, Ms! We highly appreciate the effort. Stay safe and healthy, Ms! God bless! 🙏
INSIGHT: Most cases brought by third parties are unwarranted, but with the potential for a larger number of negligence-related cases. Unless the auditor is sued by a third party when the company is no longer viable, this would be considered unjustifiable due to the termination of the obligation. The auditor is solely responsible for ensuring that the financial statements are reasonably reported where sufficient assessment is necessary. THANK YOU FOR THIS LECTURE, MISS!
Insight: On 6:09 it states that, even when the auditor does the audit right in the very best way he can and in accordance with the standards, there is still that risk that the opinion is inappropriate. An auditor can only be held liable if there is an audit failure and audit failure only happens when the auditor abandons the standards of practice. An auditor therefore, cannot be held liable for as long as he perform his audit in accordance with the auditing standards.
Good morning Miss! Pax et bonum! Insight: According to Felix I. Lessambo, common law liability arises from negligence, breach of contract, and fraud while statutory law liability is the obligation that comes from a certain statute or a law which is applied to society. The scope of both common law liability and statutory liability has been expanded to include certain third parties, mainly the foreseen or foreseeable users of audited financial statements. In this video, it was discussed that the client and the third party primary beneficiary are the parties that can sue the auditor for breach of contract, they can sue the auditor because of failure to practice the standard. The auditor is responsible for providing reasonable assurance, not absolute assurance so there are possibilities of audit risk but if it is done in accordance with the standards the auditor is not liable and that means that he is not negligent.
Hello Miss!! Insight: •The auditor, client and 3rd party primary beneficiary is covered by the privity doctrine. Thus, only the client and the 3rd party beneficiary can sue an auditor for breach of contract and ordinary negligence. • The foreseen (not specifically identified but known to the auditor) and forseeable (farthest from the auditor) 3rd party need the tort law to bring legal action against the auditor in cases of gross negligence or fraud. •An auditor performing an audit according to the standard and the very best he can is not liable because the primary responsibility of the auditor is to give reasonable, not absolute, assurance. He can be liable only if there is an audit failure.
Insight: I thought before that in the event that the client suffered losses after the auditor performs the audit, the auditor is liable for such matter. Thank you miss for making this video I was able to fill the gap of what I need to know more in auditing. I have learned that as long as the auditor follows the Standards in performing the audit, gives reasonable assurance and provides professional skepticism. Whatever losses the client may encounter after performing the audit, the auditor is not liable for such result. But in the event that the auditor did separate the standard in performing the audit and is ordinary negligence of such matter, the client and the primary beneficiary can sue the auditor which is covered by privity doctrine. On the other hand, any foreseen and foreseeable third who suffered losses due to auditor's gross negligence and fraud in performing the audit, they can gain their justice by suing the auditor which is covered by the tort law. Thank you again miss for extending your time in making this video and for helping us to learn more despite of what is happening right now. God bless you always miss 🙏
Insight: I've been hearing this ever since I started studying BSA and the possibility for me to become a CPA and an external auditor is more surreal. "Dagko baya na sila sweldo", "Dali ra kaayo na ila trabaho, pirm pirma ra.", most likely the same comments from either my family and relatives or those close friends in the province. Now I'd like to lay out this gist, it might be true that most of the time, the comments above is true. However, being a CPA or an external auditor is not easy. One single tiny mistake may cause a big problem not only to those who are directly concerned but may also affect those who are indirectly connected. Being an external auditor, let's say, requires a competitive skill and careful skepticism. The physical skills are already given and the only part were everything boils down is the ability of the auditor to practice excellent professional personal judgement and practice excellent avoidance to negligence. The external auditor's finished job is another one's data for its job and and another one's and so forth.
Good evening Miss. -Insight:- Let's go back to the basic responsibility of an auditor - he gives reasonable assurance that the financial statements is free from material misstatements. He expresses a conclusion that provides the intended users with a level of assurance about the subject matter. Legal liability against the auditor can be filed against him by the client and third party primary beneficiary only for the breach of contract as opposed to the privity doctrine. Foreseen and foreseeable third parties can only file a case against the auditor for negligence and fraud with the tort law. As long as the auditor has performed the engagement with integrity and in accordance to the standards, he will not be held liable. To prevent this from happening, he should always first carefully get to know his clients. Thank you and God bless Miss :)
The common law and statutory law are sources of law which serve as the basis on kinds of cases filed against auditors such that when they are accused of breach of contract, gross negligence or fraud. Common law is the body of law derived from judicial decisions of courts and similar tribunals. Statutory Law is a written law, enacted by a legislative body. To assimilate who are allowed to bring a case against an auditor in a court of law, the personalities related to the audit report are presented. The said personalities include the auditor, client and third party primary beneficiary who are specifically identified and known to the auditor. These three has a contractual relationship protected by the Privity Doctrine. They are therefore the ones who can sue the auditor for breach of contract and/or ordinary negligence. On the other hand, the personalities who are not specifically identified but known to the auditor are the foreseen third parties and foreseeable third parties (party farthest from the auditor). They must avail the Tort Law to be able to carry out legal actions against the auditor for the claimed injury whether due gross negligence or fraud (actual or constructive). In circumstances where the auditor was unable to detect material misstatements, he would not be liable if he performed the report in accordance with the auditing standards. As the auditor is only limited to giving a "reasonable assurance", even if he is able to perform the audit in the best ways he can, the audit risk is still extant. The plantiff, having the burden of proof, must be able to prove to the court that the accused auditor is guilty and deserving of the punishment and charges against him through these given criteria; 1. Auditor has duty of care to the plaintiff 2. There was an audit failure 3. Plaintiff suffered damage or real loss 4. Plaintiff relied on the FS or the advice given by the auditor. The auditor must bear in mind that there are varied ways he can well perform the audit while minimizing his exposures to legal liabilities. In the end, we could say that auditing is really not as easy as it seems to be as it requires conducting oneself in a professional manner accompanied with honesty, sincerity, diligence, etc. Good day, miss!
Bonjour Miss! 😊 What I learned from this video are the following: 1) Sources of law for a possible case filed against the auditor are a. Common Law b. Statutory Law 2. There is a contractual relationship between the client and the auditor. 3. Three primary parties which are covered by the PRIVITY DOCTRINE are the auditor, the client and the 3rd party primary beneficiary. 4. Who can sue the auditor for breach of contract? Only the client and the 3rd party benificiary. 5. Foreseen 3rd parties and forseeable 3rd parties are covered by TORT LAW for them to bring legal action against ghe auditor. 6. TORT law is engaged in cases where there is an allegef injurt due to a. gross negligence b. fraud 7. What needs to be proven in a court for an auditor to be found guilty? a. Auditor has duty of care to the plaintiff b. Audit failure c. Plaintiff suffered damage or loss (real loss not opportunity loss) d. Plaintiff relied of the FS or advise of the auditor. 8. How do auditor's minimize exposure to legal liability? a. Choose your clients well. b. Utilize engagement letters. c. Follow the standards, perform it with due care and exercise professional skepticism. d. Seek for legal remedies Merci beaucoup Miss Uy! Au revoir 💕
Good day Miss! Insight: -The Auditor's Legal Liability can extend from Clients and 3rd party primary beneficiary (due to breach of contract and ordinary negligence) to foreseen and foreseeable 3rd parties (due to gross negligence and fraud). -Fraud can also be constructive other than being actually committed. -It is important for the auditor to screen and investigate the client before accepting the engagement so as to minimize legal liabilities. The auditor should also exercise professional skepticism, make use of legal counsel, professional liability insurance, use engagement letters, etc. -Auditors will not be liable so long as they have followed the standards in best way they can. Then again despite all the efforts, they can only give REASONABLE assurance. Thank you Miss 😊
Good day, Miss! Insights: - Auditors are liable both Civilly and Criminally. - Only the client and the 3rd party primary beneficiary can sue the auditor for breach of contract and ordinary negligence. - While, foreseen 3rd parties and foreseeable 3rd party , by Tort Law, could bring legal actions against the auditor in cases of gross negligence and fraud. -Undetected material misstatements but performing in accordance of tge standards doesn't held the auditor liable because he/she is not negligent and given that the only responsibility of the external auditor is to provide reasonable asaurance. Only that there is an Audit failure Amit, Madieleine
Good afternoon, Ms. Dealing with an engagement, particulary audit, involves a couple of people, users that are directly or indirectly affected to audited financial statements or an auditor's opinion. Thus, it only means how crucial and empirical an auditor's role is. I can't certainly tell how good and reliable a CPA is, but a committed and competent CPA or external auditor considers a high regard of respect to all Accounting and Auditing Standards and other related Frameworks and Regulatory Compliances pertinent to its practice. Choosing a client well is basically a good start as a preventive measure to high risk exposure of legal liability. Knowing the entity's profile and background is essential before/or during engagement. Audited financial statements or even auditor's opinion is not a 100% guaranteed nor a perfect basis, because of human nature that we are susceptible of committing mistakes, audit risk is still apparent that opinion is inappropriate even though the auditor does the audit up to his best ability in accordance with the standards. Hence, an auditor can only be held liable if these four criterias are present: (1) Auditor has the duty care of the plaintiff. (2) Auditor failure or failure to comply with the standards. (3) Suffered a real loss. (4) Plaintiff's reliance on financial statements. But as far as the law is concerned, there is a presumption of innonce until proven guilty of the crime with which he is charged beyond a reasonable doubt.
Hi, Miss! I have learned that auditors are responsible to two groups: (1) Known users of the financial statements - Client and 3rd Party Primary Beneficiary, and (2)Those that rely on the financial statements - Foreseen 3rd Parties and Foreseeable 3rd Parties. However, only the client and the 3rd party primary beneficiary can sue the auditor for breach of contract and ordinary negligence since they are covered by the Privity Doctrine. On the other hand, the foreseen 3rd parties and foreseeable 3rd parties need the Tort Law to sue the auditor for Gross Negligence and Fraud. In addition, an auditor can only be liable if the plaintiff proves that the auditor: (1) Neglects his/her duty of care, (2)Fails to Audit, (3)Made the plaintiff suffer real loss or damage, and (4)Is guilty of causal connection between negligence and the plaintiff's loss. Thanks for this, Ms. :))))
Insight: In the privity doctrine only the client and the 3rd party primary beneficiary can sue the auditor for breach of contract due to ordinary negligence or for not being able to give reasonable assurance. However, those foreseen 3rd parties and foreseeable 3rd parties lies in the tort law where there is gross negligence and/or fraud.
Insight: The client and 3rd party primary beneficiary is covered by the privity doctrine, which gives the client and 3rd party primary beneficiary the right to sue the auditor for breach of contract due to ordinary negligence. Ordinary negligence as what is discussed is the failure to exercise reasonable care in performing services. Foreseen 3rd parties and foreseeable 3rd parties need the Tort Law to bring legal actions against the auditor. Where there is gross negligence/constructive fraud when there is lack of minimum care and fraud whether actual or constructive. Auditors can be held liable when there is an audit failure, where the auditor abandons the standards of practice. Auditors can't be held liable as long as the auditor performs in accordance with he standard, with due care, and with an attitude of professional skepticism. Thank you miss 😊
Good day miss! Insights: *There are sources of law that is filed against the auditor which are the common law and statutory law. Common law are those written opinions prior to the court while statutory law, those are being passed by the legistlation. *It is stated or shown in the video that when the auditor performs the audit according to the standards, he is not liable. On the other hand, he is liable when there is some failure in his audit or when he didn't follow the standards. Thank you miss!
Hi Miss!! INSIGHT: Auditors are always expected to be independent and competent in doing their jobs since they play a pivotal role in keeping the client's financial statements free from material misstatements. They should possess skills that are important in doing a fair job. And they should complete their tasks in good faith and integrity because they are well aware that there are instances that an auditor can find themselves in legal trouble, which can definitely give them a bad reputation if they do their jobs in bad faith, dishonesty, and negligence. Stay safe & healthy too, miss!!
Insight: As I was reading some research papers after watching this video, I have come to know that if the auditors fail to modify the audit report on FS that are materially misstated, investors and other creditors may experience substantial losses, and as a result of litigation against the auditor even with professional liability insurance to cover such losses, sometimes the total amount granted to plaintiffs is more than the amount that can be recovered from the insurance. And auditors/public accounting firms are somehow required to make further payments to the plaintiffs to recover from losses.
Discussed in this video includes the sources of law which are common law and statutory law. It is also discussed who can be the plaintiffs or the people who could sue the auditor. They are the third party, primary beneficiary third party, foreseen third party, and foreseeable third party. The first two mentioned can sue the auditor because they are bound to privity. The last two mentioned could sue the auditor by the use of Tort Law. The Tort Law could be violated by gross negligence and fraud that can either be constructive or actual fraud. There are four criteria to be considered to sue an auditor mentioned in the video. An auditor can be sued if he is not following the standards whether the financial statements are presented fairly or not. An auditor cannot be sued if he is following the standards regardless of the presentation of the fs.
Good day, miss! Insights: - In cases where the auditor, performed an audit but was not able to meet the standards and regulations given the fact that he did everything what he had to do, thus affecting not only the person covered in privity doctrine but also the foreseen and forceable party, then he is only liable to the client and the 3rd party beneficiary because he was not negligent. He provided reasonable assurance not absolute assurance and there is always an audit risk in every engagement. He can only be liable to all affected parties if he abandon his duty and did not follow the standards. - to bring legal actions to the court against the auditor for him to be convicted, there are 4 criterias. 1.The auditor has a duty of care to the plaintiffs or the parties, 2. The auditor fails to do this job right 3. The plaintiff suffered real loss 4. The plaintiff relied on the FS or the opinion that was issued by the auditor. Well, the plaintiff should have an evidence for these - To avoid or mitigate exposure on legal liability auditor should always choose his client thoroughly and always follow accounting standards and principles for it might affect legal damage to him in the future! Thank you, miss😊
Insight: If the external auditor failed to meet the requirements of the standards in the conduct, not everyone can automatically sue the auditor directly. Under the Doctrine of Privity of contract, only the clients (BOD) and the 3rd party beneficiary can sue the auditor for breach of contract since they are considered the primary party of a contract which is recognized by the law. On the other hand, those persons that do not belong to the privity contract like the foreseen 3rd parties and the foreseeable 3rd party need the TORT Law to sue the auditor. Despite the auditor to meet the requirements of the standard or was able to perform the audit, there is still a possibility of audit risk. In this case, even if a loss occurs, the auditor is not liable. Moreover, for the auditor to avoid or minimize legal liability, one must really know its client and always follow the auditing standards with professional skepticism. Thank you, Miss! :)
Hi Miss! Hope you're keeping safe :)) If the auditor fails or neglects to meet the standards, he can be sued by the parties who have given the reliance on him regarding the financial statements. Only the clients and the third-party primary beneficiaries can sue the auditor for his breach of contract and ordinary negligence covered by the Privity Doctrine. The others, primarily the foreseen the foreseeable 3rd parties, need the Tort Law for them to bring legal actions against the auditor.
Insight: In the matter of question as to WHO can sue the auditor because of breach of contract, ordinary negligence or violations of confidentiality. There are only few people who can sue the auditor which party that are covered by the Privity Doctirine, such as the client and the third party primary beneficiary. On the other hand the Foreseen 3rd parties and the Foreseeable 3rd party, in order for them to sue the auditor, they need the Tort Law which involved cases such as gross negligence or fraud to bring legal action against the auditor. As what I've understand the gross negligence means a lack of minimum care but is also equivalent to fraud although it is not intentional. If the Auditor followed the standards of practice, which means he did the audit right (gives them a reasonable assurance) and there is still an audit risk that the opinion is unsuitable although the client or the bank suffered such losses he will not be liable unless if there is an audit failure or the way he audit is not according to the standards. If the auditor is guilty of such, there are criteria’s to be followed in order to prove that he is guilty : (1) Auditor has a duty of care to the plaintiff (2) there is an Audit failure (3) The Plaintiff suffered losses or damages (4) Plaintiffs relied on the FS or advice of the auditor.
The parties involved in an audit assurance is not limited to the three parties discussed previously, namely the Practitioner, Responsibile Party and the Intended User, for the Third Party Primary Beneficiaries, Foreseen Third Party and Forseeable Third Party are also involved in an audit engagement. The Third Party Primary Beneficiaries are those known to the auditor. The client, along with the third party primary beneficiaries are the only ones that can sue the external auditor for breach of contract because the contractual realtionship between these parties are covered by the Privity Doctrine. On the other hand, the Foreseen and Foreseeable Third Parties does not have the same rights as to the third party primary benefieciaries and the client since they are not covered in the Privity Doctrine and they need the Tort Law to bring legal action against the external auditor. Instances where these parties can bring legal actions against the external auditor are : gross negligence and fraud. The auditor is held liable only with the presence of audit failure and this happens when the auditor fails to perform the audit according to the standards. Therefore, for as long as the auditor performs the audit in accordance to the standards, the external auditor cannot be held liable. There are 4 criterias to be considered in identifying when can an auditor be charged guilty.These are the following: •Auditor has duty of care to plaintiff •Audit Failure •Plaintiff suffers damage •Plaintiff relied on the FS or advise. At the end of the day, it is still the auditor's responsibility to keep himself away from extreme exposure to legal liability and this can be done through choosing your clients well, practicing professional skepticism and due care, and most importantly, through following the audit standards.
Hi misss!!! Insights: Being an auditor has its legal responsibilities and by this it means that as much as possible he must do his job with professional skepticism and due care for he can be sued for giving an inappropriate assurance most especially if the clients and other 3rd party primary beneficiary has greatly relied on his report. In addition, forseen and foreseable 3rd party could also sue him thru Tort law. However,for as long as the auditor has exercised due care and has followed the general auditing standards and there has been effects that are not good for the client and primary beneficiary,he cannot be sued for he has not been negligent and he is just exposed to audit risk and human as we are,it is inevitable to commit error. For as long as he has performed his duties well, there's nothing he should be worried about
Good Evening Miss!! Insight: Only the client and the third party primary beneficiary can sue the auditor for breach of contract, this may be because of the ordinary negligence or failure of the auditor to perform his duty or services with reasonable care to his client (Privity doctrine). While the foreseen third parties and foreseeable third parties need the tort law to bring legal actions against the auditor if it is involved only in gross negligence and fraud. But if the company incurred a loss while the auditor performs and complies with the auditing standards then he is not liable for that event, considering they only give a reasonable assurance and there are still risks that may occur for the opinion of the audit report.
Good day miss!
INSIGHT:
In this video, I have learned that the auditor can only be held legally liable of the financial statements if s/he abandons the auditing standards (negligence/fraud). It was also my first time learning that not only are the clients and third parties involved in the engagement can sue but also foreseen or foreseeable third parties! Such claim is possible all because of the privity doctrine and tort law respectively. Lastly, the video emphasized about the importance of choosing engagements wisely and conforming to the standards to reduce the auditor's risk to legal exposure.
Thank you for this series miss! It was surely a great binge-watching experience. Stay safe and healthy always miss!
The relationship between the auditor, client and the third party is covered by the privity doctrine where only the client and the third party can sue the auditor for the breach of contract. They can sue the auditor for ordinary negligence. Foreseen and foreseeable third parties need the tort law to bring legal action and the negligence must be gross negligence or fraud. To minimize legal liability, auditors must exercise due care and is equipped with knowledge about the laws and regulations. Thank you Ms. despite problem that is lurking around, you never fail to make us learn :)
Insight:
In this particular video, I have learned another Doctrine which is very new to my
senses, the Privity Doctrine. It identifies the auditor, the client, and the
third party who is a primary beneficiary of the audit. The legal liability of
the auditor binds to the two parties namely the client and the third party beneficiary
in which this doctrine empowers them to sue the auditor for legal liability.
Thank you, Miss Kristine June Uy, CPA! My Accounting 401 Professor! Thank you
for all you hard work despite this pandemic you still exert effort to empower
us thru Online Education. I am very sorry for the very late submission of my
comments to your RUclips Channel, Miss! Thank you so much for everything! Stay
safe, Miss!
I have learned in this video the relationship of auditor not only to its clients but to others that needs his audit. The Privity doctrine that covers the relationship exclusive only to the auditor, client and to its 3rd party beneficiary. In this doctrine the only people to sue the auditor are the client and the 3rd party beneficiary, may it be in the reasons of breach of contract or for its ordinary negligence. On the other hand, the parties foreseen 3rd parties and forceable 3rd parties can bring legal actions against the auditor in the basis of Tort Law in the reasons of gross negligence and fraud. Gross negligence is considered to be as equal as constructive fraud.
Only an auditor is said to be liable if there is audit failure, happens only if the auditor abandons the standards of practice.
Thank you for this video, Miss 💖
Insights:
Aside from the client, there are also other parties in an engagement with an external auditor and that includes third party primary beneficiary, foreseen third parties and foreseeable third parties.
The only parties that is covered by the privity doctrine is the • external auditor • client • third party primary beneficiary which they can sue the auditor for breach of contract. However, the foreseen third parties and foreseeable third parties needs the tort law to bring a legal action against an auditor.
An auditor can only be held liable if he/she committed an audit failure. So, an auditor cannot be held liable as long as he performs his duty in accordance with the accounting standards, with due care and professional skepticism.
Thank you ms for the well presented videos 😘
Hi, Miss!
Insight:
Negligence. This is one of the reason why an auditor may be held liable for his actions. To avoid this, he/she must be well known of his responsibilities and what he must not do. If lapses still exist, the client and third party primary beneficiary has the power to sue the auditor. Aside from them, foreseen 3rd parties and foreseeable third parties also has thr power but through the tort law. For worse cases to be avoided, the auditor must follow the standards to prevent it and must always keep in mind to provide best service in good faith.
Thank you so much for the information you have shared miss. God Bless You always and Lots of love 💖
Insight:
Having learned the legal liability of the auditor, it is essential from the beginning until the end of our accountancy education to have a firm foundation for us to be grounded on the standards and perform well in our future field to avoid committing mistakes which may lead to grave consequences we never wanted. Moreover, one's truthful character and due care while working in the industry is also important for the courses undertaken will just be useless if integrity is forsaken and in worst cases result to legal cases against us. Lastly, when one is working as an accountant, it is best to be equipped with knowledge, professional skepticsm, legal counsel and etc to be guarded.
Thank you, Miss!
With all the video lessons you've given to us Ms., there are so many things to learn and know about. However, one thing in common with all these videos is its emphasis on the roles and responsibilities of an auditor and the key principles to always follow. This video, again, widened my video of the common things the lessons have introduced so far. Although saying or reading the concepts of obtaining reasonable assurance, material effevts on FS, professional skepticism, etc. may sound easy, but it is with careful execution, integrity and professionalism will an auditor successfully prove his/her capability as an accountant. (I can't help but notice these common things lang Ms. because I think it poses a great duty to future accountants)
Thank you for all these lessons, Ms. 😊
Hello, Miss. We appreciate these very informative videos regarding our lessons in A401. Thank you, Miss!
Insights:
- In our previous discussions, we learned that an auditor can only provide a reasonable assurance, not absolute. This comes with the audit risk that may be involved in an audit engagement. So if an audit client had experience losses in reliance of the audit report, an auditor cannot be held liable for as long as he performs the audit in accordance with the auditing standards and did not commit ordinary negligence. An auditor can only be held liable if there is audit failure which only happens when the auditor abandons the standards of practice.
- For an auditor to be found guilty for the charges that may be brought against him, the plaintiff has the burden of proof of the 4 criteria that needs to be proven in court.
Insight:
As long as the auditor performs audit in accordance to standards, conduct audits with due care, and exercises professional skepticism, he is not liable. The auditor can be sued in common law and statutory law in the following cases which are the breach of contract, negligence and fraud. Due to privity doctrine the following person who can sue the auditor are the client and the third party primary beneficiary for breach of contract or ordinary negligence. In the person of foreseen third parties and foreseeable third parties they need the tort law to sue against the auditor for legal action in case of gross negligence or fraud.
Thank you so much miss for the knowledgeable videos. Keep safe always! God bless!
Insight:
This topic is quite interesting because I have truly learnt something out of knowledge and expectations. Especially when the external auditor is only liable to the client and 3rd parties when there is an “audit failure”. It is never substantial to say that the external auditor should be held liable to answer for damages when he or she have conformed with the standards of auditing. Meaning to say, they can only be subject to litigation or charged with fines when there is an evident neglect of their duties and deviated to abide with the standards thereby resulting to material misstatements and subsequently causing loss to the client and third parties. It is also imperative to bear in mind of the requisites of will the auditor can be taken to the court for him to answer the damages done. Thank you for this great video, Miss. 😍
Good day, Miss! This lecture sparked an interest in me since I know someone whose been sued with these issues but won the case in the end. The external auditor is bound by the Privity doctrine with the client and the third parties which are the ones who can sue the auditor in case of breach of contract and/or ordinary negligence. The foreseen and foreseeable parties aren't bound to the previous mentioned doctrine but they can still sue the auditor with the use of the "Tort Law' when there is an evident proof of 1.) Gross negligence; 2.) Fraud; 3.) Lack of minimum care and 4.) Constructive fraud-- the burden of proof however is by the plaintiff following the criteria in order for the auditor to be proven guilty in the court. Thus, it is important to choose the clients wisely and strictly follow the standards of auditing then it's good to say that the auditor did his/her best in providing the best service to the client.
Good evening Miss!!
Insight: The video talks about the auditors legal liability. Auditors are important in business because they are responsible for the reliability of financial statements. In this video, I learned that under the privity doctrine, only the client and the third party primary beneficiary can serve as plaintiffs for cases against the auditor for the breach of contract and ordinary negligence. On the other hand, foreseen third parties and foreseeable third parties need a TORT Law for legal action against the auditor - in cases of gross negligence and fraud whether actual or constructive.
To sum it all, the auditor must choose their client wisely and follow auditing standards. Also, professional skepticism is a must. Thank you for this informative video, miss. Keep safe ☺️
Good day Ms.
Insight:
Honestly at first I thought that an auditor will not be liable when engaging in an audit engagement for he/she is only giving reasonable assurance to the intended users but I was wrong and thank you for this Ms! With this video I realized that there is no escape for liabilities even only giving an opinion, a reasonable one.
The auditor is liable if he/she committed negligence in performing the audit resulting to real loss and that the clients rely so much on the service. But as long as the auditor did his/her very best to perform the audit in accordance to the standard he or she is not liable.
Hi Miss! thank you for all the video discussions!
Insight;
The only persons that can sue the auditor for breach of contract and ordinary negligence are those within the privity doctrine which are the clients and the 3rd party primary beneficiary. On the other hand, the forseen 3rd party and foreseeable 3rd party needs the Tort law to bring legal action incomes to gross negligence and fraud.
The auditor is only liable if there is an audit failure. An audit failure happens when the auditor does not perform the standards of practice. The auditor cannot be liable if he perform in accordance to the standards.
The video had taught me that there should be a connection between the negligence committed by the auditor and the loss suffered by the plaintiff. Also the auditor must bear in mind that in doing the audit one must follow specified standards as well as be mindful of the after effects or the harm it can input to other people who relied on the FS. Thus he/she should be careful in choosing his/her clients and be dilegent in making the audit. Thank you Miss.
There are 2 sources that can be filed against the auditors; common law- opnion based from courts and statutory law- statutory in nature or passed by legislation.
The client and the third primary benefeciaries can sue the auditor for breach of contract and ordinary negligence thru privity doctrine.
Foreseen 3rd parties and foreseeable 3rd party can bring up file against the auditor by Tort Law in cases of gross negligence and fraud.
4 instances where a client may brought charges to the auditor unless proven otherwise:
1. Duty of Care
2. Audit Failure
3. Suffered Damages or Loss
4. Reliance to f.s or advices
An auditor is not liable as long as he has done his part in good faith.
Thank you for your efforts Miss! 😊
Legal liability would not happen as long as the auditor do its job in accordance with the standard. I like this video because it reminds me that the responsibility of the auditor is not only the thing he needs to keep an eye on but also the effect of it to its client and third primary beneficiary and that could extend to the foreseen third parties and foreseeable parties.
Thank you for this and for everything, Miss! You've made us approach Accounting 401 in an interesting way. Be safe, Miss. Adelante!
Good day!!!
In this video I learned how audit engagement works and also I was able to identify that the client and 3rd party are the primary beneficiary who also can sue the auditor vested by Privity Doctrine.
It should be always put in mind not just by the auditor but for all of us to work with integrity and follow the establish standards set by the authority.
Thank you, Miss.
Insight:
I realized that auditors are important also just like the other profession. They are the one who is responsible for the reliability of financial statements to all the intended users and that they can also be sued which I thought that it could be anyone can sue if there is a breach of contract. But what I have learned from the video is that the person who can sue the auditor are the client and the 3rd party beneficiary under the Doctrine of Privity when there negligence or fraud. In order to avoid liability from the clients, an auditor should know its client first and follow the auditing standards with due care and uphold a professional skepticism at all times.
Thank you Miss ♥ Happy Easter !
Insight
A key concept here on when an auditor will be liable, is only if there's negligence /gross negligence or fraud in preparing audit reports or doing such audits. As an auditor, we must be reminded and be always guided, by the principles, standards relating to our field work in order for us not just to provide reasonably assured audits to concerned parties/users but also to protect ourselves from harms just like a suit against us for example.
Good day miss! Thanks a lot😊
Good day miss!
Today's lesson I have learned the legal liabilities of the external auditor. From the question who can sue the auditor down to who lies the burden of proof. The auditor, before starting the engagement must have a contract with the client that lies the connection between the two. In this lesson, I have learned the difference persona of an auditor, his connection to the client, to the 3rd primary beneficiary, foreseen 3rd parties and foreseeable 3rd parties. Under the privity doctrine, the persona between the auditor, client and 3rd party primary beneficiary are at hand. Meaning, the client and the 3rd party primary beneficiary can sue the auditor in case of ordinary negligence and not following with the standards. In the case of the foreseen 3rd parties and foreseeable 3rd parties, they can also sue the auditor but only under the tart law where in this case the auditor have committed gross negligence. And in the court, whoever is the plaintiff, he/she must present the proof that the auditor have committed the wrongdoings. This falls under the basis of duty of care, audit failure, the damage or loss suffered by the plaintiff and the reliance of the FS that brought the plaintiff to cause any damages or losses.
Hi Miss!
I never thought that this circumstance do exist hehe. Thanks for this video miss.
Here are my insights:
Common law and statutory law are the sources for a possible case filed against the auditor. In accordance with the Privity doctrine, only the client and third party primary beneficiary can sue the auditor for breach of contract. The can sue him for ordinary negligence. On the other hand, foreseen and foreseeable third parties need the tort law to sue the auditor and can sue him for reasons of either lack of minimum care, constructive fraud or actual fraud.
Your illustration and example miss made me better understand the process of knowing to whom the auditor is legally liable. The auditor can be held liable if he commits audit failure and abandonment of the standards of practice. The four criteria that proven that the auditor is guilty:
a. Auditor has duty of care to the plaintiff
b. Audit failure
c. Plaintiff suffered damage or loss
d. Plaintiff relied on the advise or FS
There are numerous ways of how the auditor can minimize exposure to legal liability, but the most important are to choose your clients wisely and always follow the standards.
Good day Miss!!
Thanks to this video I have a clear idea of how relationships (from client to 3rd parties) work in the roles of plaintiffs. This is essential especially on exercising ones right. Knowing the Auditors legal liability it can compel the auditor to do what is right and this gives the clients the security of compliance or vice versa.
Insights:
An auditor must be knowledgeable, well-informed, and diligent. Every omission and commission has a consequences.
Thank you for the learnings Miss. I am also well-inspired to be an Auditor someday miss. Thank you for the inspiration and knowledge. Goodluck and God bless you always miss.
Good day miss! :)
Insight:
I have learned that the liability of the auditor arises when there is an audit failure or when the auditor abandons or neglects the standards of practice. Also, the individuals who can sue the auditor when there is a breach of contract are the client and the third party primary beneficiaries due to the Privity Doctrine. Moreover, the foreseen and foreseeable third parties can also sue the auditor through the TORT Law if there is an alleged injury due to gross negligence or fraud. However, there are still ways that the auditor can evade litigation and the most significant of all is to follow the standards. Thank you miss! :)
Good day miss!
This video made it clear who and how are the parties involved. Their role in the story also hints their rights and the law that protects them in case the auditor is negligent. Thinking about it, an auditor's work extends to many people's interests and along with it is the liability he must answer in case conditions aren't met. This might feel burdensome but as long as an auditor work with the standards, due care and professional skepticism in tact, one can be confident that the work has been dilligent. Being aware of your responsibility and liability to whom is helpful in better understanding your line of work and carry out utmost professionalism.
Thank You!
Good day miss!
Insights: I’ve learned that the best thing for the auditor
to minimize exposure to legal liability is to choose the clients well, utilize
engagement letters, exercise due care and professional skeptism, and seek legal
counsel. The auditor must also do his job according to the auditing standard and
due care to avoid liability to the client, primary, foreseen, and foreseeable third
parties.
All in all, thank you for the effort of still continuing to teach us about the subject miss. Every video that you uploaded makes me more interested in the course. Thank you miss! We appreciate all your efforts a lot. God bless😊
This may not be related to the video but I would like to leave you a quote
"If you do what you've always done,
you'll get what you've always gotten"
-Tony Robbins
Thank you so much miss!❤
I learned that there exists, between the parties, a distinction on their legal rights against an auditor. The client and third party primary beneficiary have the privity doctrine which gives them the ONLY right to sue the auditor for breach of contract including ordinary negligence. Meanwhile, both foreseen and forseeable third parties need the tort law for them to be able to bring a legal action against the auditor. It also came as shock to me how ,although without intent, recklessness in doing audit can be a ground to construe constructive fraud which can then be an equivalent to gross negligence.
Thank you, Miss!
Hi Miss!
Insight:
I learned that only the client and the third party primary beneficiary van sue the auditor for breach of contract or ordinary neglience however the other third parties can only use the tort law to bring legal action against the audito for gross negligence and fraud. I also learned that the liability of the auditor depends if the auditor throughly followed the standards. If he or she did not follow the standards then the auditor is liable however of the auditor followed the standards but the FS was found to have misstatement then the auditor is not liable. The auditor can minimize his exposure to legal liability by choosing the clients well following the quality control standards, the PSA, Code of Ethics, extreme care of clients with financial difficulties and more.
Thank you miss!!
Parties covered by the privity doctrine such as the client and the 3rd party primary benificiary are the only one who can sue the auditor for breach of contract or ordinary negligence.
Foreseen 3rd parties and Foreseeable 3rd parties need the TORT Law to bring legal action against an auditor in cases of gross negligence and fraud whether actual or constructive.
An auditor cannot be held liable for as long as he performs his audit in accordance with the auditing standards.
Thank you, Miss for this video!
Pening, AK TTh 9:00-12:00 nn
Good day miss!
Because of this video, my thoughts regarding the auditor's legal liability was clarified and added.
• The relationship between the auditor, client, and third person primary beneficiary is covered by Privity Doctrine. It means that only the client and 3rd person primary beneficiary can sue the auditor for breach of contract and ordinary negligence.
• The other 3rd persons needs Tort Law to enforce legal actions against injury or losses suffered due to gross negligence and fraud.
•To minimize the exposure to legal liability, an auditor should know the client first before accepting the engagement, perform the audit in accordance with the relevant standards and exercise professional skepticism.
Thank you!
Good Day, Miss!!
INSIGHT:
This video added to my knowledge about the elements of an assurance engagement. Aside from being the primary three parties of an assurance engagement, the Practitioner, Responsible Party, and the Intended User are also covered with the Privity Doctrine thus making two of them (client and primary beneficiary) as the only parties that can sue the Auditor for a breach of contract, this is so because they are the ones directly involved in the contract entered (Assurance Engagement). The other parties, on the other hand, can also sue the Auditor by application of Tort Law. With this, if a foreseen third party, or a foreseeable third party, or both, suffered damages because of the Auditor's negligence, they can remedied by suing the Auditor for damages.
As always, thank you for gracing us with learnings amidst this hard times Miss. God bless and stay safe always!
Good day, Miss✨
This video clearly explained that not all cases of loss will the auditor be legally liable. An auditor can only be held liable if he performed his duty neglecting the standards that resulted to losses. And so, as long as the auditor complied with the standards and does his job according to it but still resulted to losses, the auditor cannot be held liable.
Talking about legal liability, under the privity doctrine, only the client and the 3rd party primary beneficiary can sue the auditor for breach of contract. However, under the Tort Law, other parties can also sue the auditor on the grounds of gross negligence and fraud.
THANK YOU, MISS!!!✨
Hi miss.
Insight:
The video itself is very comprehensive but its just that there are too many unfamiliar terms miss. It was well explained but after watching the whole video, I got a bit confused. Three things caught my attention though and these are the PRIVITY DOCTRINE, TORT LAW and the PREVENTION OF LEGAL LIABILITY. I believe all of which will be very useful as we move forward towards our goal. Also, the examples given are very understandable (as always).
That is all miss. Thank you!
The video itself is very informative. It really helped me envisage the relationship of the parties in an audit engagement. There are two frameworks or shall I call "basis" as to who are able to sue the auditor for breach of contract and negligence - privity doctrine and tort law. Through these basis, I am also able to properly determine who are directly and indirectly affected by the auditor's liability. Additionally, I have perceived that the auditor's opinion is indeed essential to the different parties as this can either bring the parties into positive or negative outcomes. He/She should also put emphasis on the PSA when performing audit. Lastly, such exposure of liability to the auditor can be reduced (as always reminded from the previous videos) through the virtues of integrity, reliability, professional skepticism and objectivity.
Good Evening Miss!
Insight:
Based on what has been discussed, only the client and the third party primary beneficiary can sue or can demand legal proceeding for breach of contract from the auditor as they are protected by the privity doctrine. On the other hand, the foreseen and foreseeable third parties will have to rely or depend on the Tort Law to bring legal action against the auditor- this basically applies when large injury is acquired either by gross negligence or fraud in audit, be it actual or constructive.
Conclusively, an auditor becomes liable when there is an audit failure- which to say, happens only when an auditor abandons the standard of practice or should it be, perform less than what has been expected of them as professionals. Therefore, he does not become liable when he follows or accomplishes his duty in accordance with the auditing standards.
Thank you Miss!
Good day, Miss!
INSIGHT:
Negligence and compliance to the auditing standards are factors that determine whether an auditor is legally liable or not. The burden of proof lies on the plaintiff.
Thank you so much for all the videos, Miss! Your efforts are highly appreciated 💜 The work ahead of us (if makalahutay man jud gani 😅) may seem to be very challenging and difficult but you made it look so exciting and a job that would surely give us a meaningful experience. Once again, thank you Miss and God bless! Stay safe and healthy sad Miss!
Hello, Miss!
External auditor really plays a pivotal role for providing reasonable assurance and keeping the FS fairly presented. Like any other professionals, auditors could be prosecuted in a criminal court for either knowingly or recklessly issuing an inappropriate audit opinion. That is why he is expected to finish his job in good faith knowing that they are liable for negligence or fraud.
Under the Privity Doctrine, auditors can be sued only by client entity and the third party primary beneficiary due to breach of contract or ordinary negligence. On the other hand, foreseen 3rd party and foreseeable 3rd party need the Law of Torts to bring a legal action against the auditor due to gross negligence or fraud whether actual or constructive.
Also, there are 4 criteria of the court for the auditor to be proven guilty of the charges brought against him: auditor has due care to the plaintiff, audit failure, plaintiff suffered damage or REAL loss and plaintiff relied on the FS advise.
With this, auditor can minimize his exposure to legal liability by conducting the audit with due care, follow auditing standards, exercise professional skepticism, choosing his client wisely, use of engagement letters and seek legal counsel.
Thank you for all these videos miss. Keep safe and adelante!
Good day, Miss 😁
Insight:
In this video Miss, I've learned how the auditor can be held legally liable to his or her client. I know none of this before actually but what is really must remember of the auditor is that never ever disregard or dispatch the auditing standards as it is a responsibility of the auditor, otherwise he or she can be held lianle by his or clients. Moreover, if the auditor is being sued, he or she is proven guilty if the auditor has a duty of care to the plaintiff, when the auditor did not follow the standards, the plaintiff has suffered damages or losses and lastly if the plaintiff or the clients relied on the financial statements or advise from the auditor. Hence, it is really important for the auditor to perform the engagement with his or her full ability as an auditor.
Thank you Miss 😁😁
Auditor's responsiblity as discussed in the previous videos includes obtaining reasonable assurance, obtaining a general understanding about the legal and regulatory framework and obtaining sufficient and appropriate evidence of noncompliance, and there are certain cases where they can be held liable if those mentioned responsibilities is not obtained. There are two sources of law where they can be held liable, first is the common law which is written opinion of prior courts, second is the statutory law which is by legislation. I've also learned about the privity doctrine which says that it cannot confer rights and impose obligations to just any person, it identifies the client and the third party primary beneficiary as either or both possible plaintiff.
Insight:
Auditors cannot be sued by just anyone for breach of contract. Only the client and the third party primary beneficiary can sue the auditor for breach of contract under the Privity Doctrine. Auditors can lessen their exposure to legal liability by choosing their clients well. Following the standards is also a great help for them to never go wrong.
Thank you Miss!
Good day, Miss. Here are my points to ponder upon watching the 8-minute lecture above:
1. Only the client and the primary beneficiary can sue the auditor for breach of contract for ordinary negligence because they are privy to the contract
2. Foreseen 3rd parties and foreseeable 3rd parties need the TORT LAW to bring legal actions against an auditor, in cases of GROSS NEGLIGENCE.
3. The auditor that cannot be held liable for as long as he perform his audit in accordance with the auditing standards.
4. Criteria for the audior to be proven guilty before the court:
a. duty of care to the plaintiff
b. audit failure
c. plaintiff suffered damage or real loss
d. reliance on advise given by the auditor
5. Auditors can minimize their legal liability through:
a. choosing clients well
b. use engagement letters
c. compliance with the standards
d. a professional liability insurance coverage or seek legal counsel.
*Magdaraog, JA
Good day Ms!
Today, I have learned that the contractual relationship between the auditor, client and the third party is covered under the privity doctrine which gives them the option to sue or carry lawful activities to the auditor in the event that he have breached the contract or neglected to practice sensible consideration in the execution of his administrations which includes the confidentiality doctrine. There are additionally 4 criterias to qualify whether the auditor submit breach of contract, (1) the auditor has duty of care to the plaintiff (2) audit failure (3) plaintiff has suffered real damage or loss and not merely opportunity loss (4) plaintiff relied on the FS or advise of the auditor. There are likewise ways for auditors to lessen or maintain a strategic distance from the introduction to lawful obligation like picking its customers well , having legal counsel and most particularly observing the fitting guidelines that follows the standard.
Good Morning Miss!
Insights:
I have learned that the contractual agreement or relationship between the auditor, client and third party primary beneficiary is covered under the privity doctrine which gives them the right to sue or bring legal actions to the auditor if he have breached the contract or failed to exercise reasonable care in the execution of his services which includes the abandonment of auditing standards and the confidentiality doctrine. The auditor will also extend its legal liability to forseen and forseeable third parties which is covered under the tort law if he commits gross negligence or fraud in his audit either actual or constructive. There are also 4 criterias to qualify whether or not the auditor commit breach of contract and plead guilty of the charges brought against him by the plaintiff which is the party that has the burden of proof and these should be established in court to give validity that there is really a causal relation between the auditors negligence and plaintiff loss: (1) the auditor has duty of care to the plaintiff (2) audit failure (3) plaintiff has suffered real damage or loss and not merely opportunity loss (4) plaintiff relied on the FS or advise of the auditor.
There are also ways for auditors to reduce or avoid the exposure to legal liability like choosing its clients well , having legal counsel and most especially following the appropriate standards.
Happy Quarantine Miss!
Insights:
(1)Only the client and third party primary beneficiary can sue the external auditor for breach of contract because of the privity doctrine. However, foreseen and foreseeable third parties can still file legal action against the external auditor with the guidance of the tort law.
(2)In some courts, gross negligence of an auditor is deemed to be a form of constructive fraud despite having no intent.
(3)An auditor cannot be held liable even if the client and other persons of interest suffered losses if the former will just act and follow the auditing standards.
Insight:
Under the privity doctrine, the client and the primary beneficiary can held the auditor liable in cases where there is ordinary negligence. However, if it's the 3rd parties, it must be gross negligence or fraud. Again, the auditor's responsibility is to give reasonable assurance. So long as the auditor exercised due care, professional skepticism and followed the standards, exposure to legal liability can be minimized.
Thank you miss for all your efforts in making these videos. God bless and stay safe po. 😊
Hi Miss here is my summarized understanding gain after watching this video:
In an engagement, it is not only the client and the auditors that are involved throughout. Aside from them, there are Third parties which may be segregated as:
a. Primary Beneficiary which is the only third parties covered in the Privity Doctrine along with the client and the auditor having a contractual relationship and because of this relationship, the client and the third party primary beneficiary has the power to sue the auditor for breach, negligence and failure to exercise reasonable care throughout his/her service.
b. Foreseen; and
c. Foreseeable.
Indeed, auditors can also be liable for any misconduct and incompetence. That is why, to minimize the burden of these liabilities the auditor is bound to:
a. choose good clients
b. follow audit standards
c. utilize engegement letters; and
d. seek legal remedies
Thank you miss.
Good Morning Miss!
These are my gathered insights in this video:
It is very important to take note the primary responsibility of the auditor where he or she must obtain reasonable assurance in which the financial statements of the entity, taken as a whole, are free from material misstatements whether caused by fraud or error. Meaning that the auditors are the ones responsible in securing the reliability and accurateness of the financial statements that will be used by the client and other third parties. But despite of the skills and training that these auditors took to make themselves capable, there will always be risks of negligence on their part and might curtail the transparency and the presentation of facts in the financial statements. That is why it is important for the Clients and other parties to set a safety net for them to be able to secure the auditors diligence in performing his or her duties. There are two cases that can be filed against the auditor, and these are the Common law and the statutory law. Before the engagement of the Client and the external auditor, both parties shall sign a contract which is in a form of and engagement letter. The contractual relationship that exist between the client and auditor creates a Privity of relationship that renders the right to sue the external auditor for breach of contract in the bases of ordinary negligence or failure to exercise reasonable care in performing his/her services required for the engagement. In some cases, a primary beneficiary of the FS which is considered as a third party can also be included in the Privity of relationship which shall provide a right for such third person to sue the auditor for ordinary negligence. Third parties such as Foreseen 3rd parties which are not specified in the contract but known by the auditor, and the Foreseeable 3rd parties which have a reasonable need to rely on the FS (Potential Investors and Bond holders) need the TORT LAW to bring legal action against an auditor. They can invoke such action if there's a possibility of injury due to Gross Negligence (Lack of minimum care) or sometimes equitable to constructive fraud because of the recklessness of his/her act, even without any intent of performing such. They can also use TORT LAW to bring legal actions against an auditor in cases of Fraud (constructive or actual). To sum it up, the auditor can only have a legal liability in cases where he or she is ordinarily negligent of his responsibilities in the engagement or fails to comply or exercise reasonable care in performing services.
Insight:
In an engagement there could be many personalities present that has their own responsibilities and as well as their legal liabilities. An auditor must possess the needed/required skills to complete their work has duty to employ the skills with reasonable care and diligence. The auditor must complete his duty with integrity. Covered by the Privity Doctrine(Breach of Contract)are the parties presentre the client and the third party primary beneficiary can sue the auditor as they have contract with the auditor. The foreseen 3rd parties and the foreseeable 3rd parties would need the Tort Law in order to sue the auditor.
Thank you kaayo, Miss!🙌💕
Insight:
This video helped me a lot in visualizing how the audit engagement is entered into by the parties involved, and who are these parties involved, directly or indirectly. The auditor can be liable to a lot of people if the audit is not performed well. Thus, the auditor must at all times conduct the audit in accordance with established standards, rules and regulations.
Insight:
•There are other persons involved in an engagement apart from the External Auditor and the Client. There could be a Third Party Primary Beneficiary, Foreseen Third Parties, and Foreseaable Third Parties. The external auditor, client, and third party primary beneficiary have a contractual relationship and they are covered by the Privity Doctrine. For this reason, only the client and the third party primary beneficiary can sue the External Auditor for breach of contract, ordinary negligence, and the failure to exercise reasonable care in the performance of audit services. The foreseen and foreseeable Third Parties do not have the same rights with the previous two.
•An Auditor can minimize the burden of liability by choosing good clients, utilizing engagement letters to avoid/ minimize exposure, and following audit standards and seeking remedies.
Thank you so much, Miss! Your effort in making these videos is highly appreciated. 🥰
Hi Miss!
This video made me realize the extent of an auditor's role when it comes to an audit engagement. The auditor’s responsibility extends not only to his client and the third party primary beneficiary, but also to the foreseen and foreseeable third parties. This is then how I learned that apart from the client and the auditor, there are still other parties involved in an engagement.
The video also highlights the rights of those people involved in an engagement. To reiterate, only the client and the third party beneficiary can sue the auditor for breach of contract and absence of reasonable care in performing his/her duty. The foreseen and foreseeable third parties, on the other hand, can sue the auditor on the grounds of gross negligence and fraud, whether actual or constructive.
The video also made it clear that for as long as the auditor performs his/her duty in accordance with the auditing standards, he/she cannot be held liable. Lastly, choosing your clients very well, following the auditing standards, and keeping due care and professional skepticism intact, one can say that the engagement has been performed diligently.
Miss, thank you so much for all your hardwork. May you continue to inspire aspiring CPAs like us. God bless you miss and stay safe. 😊
The auditor and client is bound by an agreement emboded in a contract. However when an auditor breaches the contract he can be sued by the client or by a 3rd party primary beneficiary because the three identities are governed by privity doctrine. In addition, when the auditor commits gross negligence or fraud he can be sued under the doctrine or tort law by the foreseen and foreseeable 3rd parties. Thus, the job of an external auditor is crucial that when he commits the said omissions he shall be faced with charges. He must always follow the Code of Ethis for External auditors, the standard and the law.
Thank you so much miss. Although this pandemic is only around the corner, you never fail teach us. Keep safe miss. Adelante🙂❤️
Hi Miss!
Insights:
The primary job of an Auditor is to provide a reasonable assurance to clients that the FS is free from material misstatement. An Auditor is expected to possess skills like professional skepticism in performing the job. Mistake is inevitable in every job but if an Auditor doesn’t perform his/her job by failing to follow the standards and through his/her negligence, legal responsibilities follows. Once an Auditor breach a contract under the Privity Doctrine, the client and the party’s primary beneficiary can sue the Auditor. In addition, there are also Foreseen third party and Foreseeable third party who can sue the auditor for gross negligence and fraud. Therefore, the Auditor must know and follow the standards and perform the job with due diligence.
Thank You, Miss! and Keep Safe Always
Good day miss😊 This video answered well on my questions before. I wondered what are the auditor's actions that may cause him to be liable. The auditor can only be held liable if there is audit failure. *Audit failure* is when the auditor has not followed the audit standards. The auditor cannot be liable if the audit report caused losses when the auditor has accordingly followed the PSAs.
I also learned in this topic of who are those that can sue the auditor/plaintiffs. The *client* and *3rd party beneficiary* ( _privity_ ) are the *only ones* that can sue auditor because of _breach of contract_ and _ordinary negligence_ . The *foreseen 3rd parties* and *forseen 3rd parties* need the *TORT LAW* to sue the auditor, because of _gross negligence_ and _fraud_ .
The *criteria* that has to be proven of an auditor/plaintiff:
1. auditor has duty of care to the plaintiff
2. audit failure
3. plaintiff suffered damage or loss
4. plaintiff relied on the FS or advice
To minimize exposure to legal liability, an auditor should *choose clients well* , *utilize engagement letter* , *follow audit standards* and *seek other remedies* such as professional liability insurance & legal counsel.
Good day, Miss!
Insight: Under the privity doctrine, the auditor can be sued for breach of contract and ordinary negligence by the client and third party primary beneficiary only. The Tort Law is required in cases where the foreseen and foreseeable third parties want to bring legal actions against the auditor for gross negligence and fraud (either actual or constructive).
The auditor can be held liable if there is audit failure and this happens when the auditor didn't act in accordance to the standards.
Hi Miss💙
Insight:
Contractual relationship exists between the auditor and the client and as well as to the 3rd party primary beneficiary. These parties are being covered by the Privity Doctrine and only the client and the 3rd party primary beneficiary can sue the auditor for breach of contract and ordinary negligence.
Aside from this, Tort law are needed by the foreseen 3rd parties and foreseeable 3rd parties to bring legal actions against the auditor for gross negligence and fraud(either constructive or actual).
On the other hand, there are 4 criterias to prove that auditor is guilty:
-Auditor has duty of care to the plaintiff( client/3rd party primary beneficiary/ forseen 3rd parties/ foreseeable third parties)
-Audit Failure because of deficient auditor conduct
-Plaintiff suffered damage or loss(real loss)
-Plaintiff relied on the FS or advise( there must be causal connection between the auditor's negligence and the plaintiff's loss)
Thus, auditors should always be careful on their duties since good operations in their management is always in their hands.
Thank you Miss😊
Good Day,Miss! The privity doctrine covered only by the client and third party who are the primary beneficiary which gives them only the right to sue the auditor for breach of contract or ordinary negligence, whereas the foreseen and foreseeable third parties are under the tort law which brings legal action against the auditor. However, to maintain the auditors legal liability, he should carefully choose his client that includes investigating his client, keep away from company that are inclined to legal action. Additionally, he should adhere to the standards established by the council to keep away from conflicts in the near future. Thank you, Miss! & God Bless
Good day Miss!
I have learned that only those covered by the privity doctrine--specifically the client and the 3rd party primary beneficiary--can sue the auditor for breach of contract and ordinary negligence. If the foreseen 3rd parties and foreseeable 3rd party want to sue the auditor for reasons of gross negligence and constructive fraud, they can, but would need the tort law to bring a legal action to the court. For as long as the auditor exercises professional skepticism and performs his duty in accordance with the auditing standards, he would not be liable even if the company suffered losses due to reliance to the audit report since, as already mentioned multiple times in previous videos, the auditor only provides a reasonable assurance to its clients.
In order for the accused auditor to be proven guilty of the case brought against him, the following criteria are should be present: (1) The auditor has a duty of care to the plaintiff, (2) there is audit failure, (3) plaintiff habe suffered damage or loss--real loss as opposed to opportunity loss, and (4) the plaintiff relied on the FS or the advice given to him/her by the auditor. The video also answered the question of "how will the auditor minimize exposure to legal liability," and these are to choose their clients well, use engagement letters, perform their duty in accordance to the audit standards, practice professional skeptism, and by seeking legal counsel.
God bless Miss!
INSIGHT:
The only persons that can sue the auditor for instances like breach of contract because of ordinary negligence such as that of violating the acts of confidentiality are those that are covered by the privity doctrine mainly the client and the primary beneficiary, which happens to be the third party. The tort law is applicable to those foreseen 3rd parties and foreseeable 3rd parties who wanted to take legal action against the auditor for reasons such as lack of minimum care in performing services and those that are accounted to fraud.
Thank you for your hardwork miss
YEY! Thank you for all the videos miss. I've learned a lot hehe bisan dili kaayo tag.as ako mga comment hehehe :). Thank you for all the effort miss. Very appreciated. God bless and keep safe.
This lecture made it clear who are the parties that are affected if the auditor doesn't do his/her job properly and what can these affected parties do if it does happen. Since the auditor, client and 3rd party primary beneficiary have a contractual relationship, they can sue the auditor for breach of contract or for ordinary negligence. The foreseen 3rd parties and foreseeable 3rd parties need the tort law to sue the auditor for gross negligence or fraud (constructive/actual). And so it is essential for the auditor to act diligently and with accord to the standards to avoid legal liability.
Hi miss
This video helped me understand how audit engagement works, it gave clear information about who are involved, from the auditor down to the client and other parties involved which are not the ones primarily affected with the engagement. There are a lot of peope relying to what the auditor has to say, they may be affected direclty or indirectly that's why the auditor must really do his job properly for he may be liable to these people if something regarding his work happens. But it must be noted that, only the client and the third party primary beneficiary can sue the auditor for breach of contract and ordinary negligence. Other parties not mentioned can go after tort law if they have some problem against the auditor. It is also important to consider that the auditor can only provide reasonable assurance and consider audit risk to see if the auditor is liable. He will only be liable if he did abandon the standards of practice which led to audit failure.
In this video, I've realized how crucial the work of an auditor is. That is why the work of an auditor must be done with great observation, care, and understanding (That's why there are 'suggested' procedures and guidelines provided to assist the auditors). I can really say that the auditors carry a great load on their shoulders because people tend to rely on their reports and judgment and if they fail with their work, there is a high chance of substantial losses to the creditors, investors and even to the 3rd party primary beneficary. With this, in case the auditor committed a gross niglegence then the client and the 3rd party primary beneficiary may sue the auditor.
Good Evening Miss!
Insights:
It is crucial for an auditor to perform his obligations to his client the best and right way that he can ,that should always be in line with the auditing standards, in order to lessen his legal exposure. Now, referring to who brings out legal exposure to auditors are those parties pertaining to the client and the third party primary beneficiary are the ones who have the right to sue the external auditor for breach of contract due to ordinary negligence because the auditor is bound by a contract to these parties referred to and since they are covered by the Privity Doctrine. And to those foreseen and foreseeable third parties, they can take legal actions to the external auditor for instances that involve negligence, specifically gross negligence, and cases of fraud acted out by an auditor, in which, these instances pertain to be dealt under the Tort Law.
Hi miss, Good Day!
Insights:
Under the privity doctrine, only the client and third party primary benficiary can sue the auditor for the breach of contract and ordinary negligence whereas, foreseen and foreseeable third parties need TORT LAW to bring legal action against the auditor. Tort law invoked in cases when there is alleged injury due to negligence , gross negligence and fraud.
In the case of FGH corp., the company did not make known to the auditor that the FS was used for obtaining a loan from a bank. Furthermore, the external auditor failed to meet the standards of the audit and signed it without the conduct of actual audit, thus, the auditor, is liable for ordinary negligence to the client and the bank of funds. He is also liable to the investors who suffered loss(need tort law).
Therefore , to minimize legal liability the following are some of its measures:
a) auditor must perform an audit in accordance with the standards
b) choose and investigate client wisely
c) follow the CODE OF ETHICS
THANK YOU MISS!
Good Day Miss! Today I’ve learned that the possible sources of law for a filed case against an auditor are the common and statutory law. It is also important to know the different personalities who can be the plaintiffs and their relationship with the auditor for us to differentiate when can they bring legal action against an auditor. The auditor’s contractual relationship with the client and the third party primary beneficiary being governed by privity doctrine, allows them to bring legal action to the auditor for breach of contract and ordinary negligence. On the other hand, the foreseen and foreseeable third parties having no privity relationship with the auditor, can only bring legal action and that is when the auditor made a gross negligence or fraud on his audit. The auditor to be proven guilty must have fulfilled the four criteria which are; duty of care towards the plaintiff, deficient conduct that led to audit failure, the plaintiff obtained damages and real losses and they relied on the FS. To limit an auditor’s exposure with these legal liability, a number of things can be done such as choosing the clients well, utilize engagement letter, follow audit standards and others. This only means that being an auditor is not that easy peasy, but as long as you as an auditor perform your audit according to the auditing standards, with due care along with the exercise of professional skepticism then you need not to worry. Thankyou for the video miss!
Insight:
The auditor can be held legally liable in case of audit failure that's why it is very important for an auditor to perform the audit with due care, in accordance with the standards, and apply professional skepticism to avoid liability.
In the privity doctrine only the client and the third party primary beneficiary can sue the auditor for breach of contract due to ordinary negligence or for not being able to give reasonable assurance.
Thank you, Miss! God bless 💕
Good evening Miss 😊
Insight:
The privity doctrine covers the relationship of the auditor, the client, and the third party primary beneficiary where they can sue the auditor in case of ordinary negligence and breach of contract. In order for the auditor to be sued, there must be negligence, the auditor has a duty of care, audit failure, the plaintiff suffered damages or loss and the plaintiff relied on the financial statement and the advise given by the auditor. And the plaintiff has given the burden of the proof for that.
The auditor can prevent or avoid these legal liabilities by performing the audit in accordance with the correct standards. Also, by choosing the clients that has strong integrity and is reliable.
Thank you miss!
Hi, Miss :)
There are two sources of law which can be filed against an auditor, common law and statutory law.
Who can sue the auditor?
It is important to consider the different persons involved in an engagement.
1. External Auditor
2. Client
3. Third Party Primary Beneficiary
4. Foreseen Third Parties
5. Foreseeable Third Parties
The first three (external auditor, client, and third party primary beneficiary) have a contractual relationship and they are covered by the privity doctrine. Because of this, only the client and the third party primary beneficiary can sue the external auditor for breach of contract, ordinary negligence, and the failure to exercise reasonable care in the performance of audit services. Both the foreseen and the foreseeable third parties do not have the same rights with the client and the third party primary beneficiary because they are not privy to the contract. They can only bring legal action when the auditor allegedly caused an injury due to gross negligence or fraud (actual or constructive) in accordance with the tort law.
NOTE: An auditor cannot be held liable if he performed in accordance with the auditing standards. (Question, Miss, is this true all the time or are there any exceptions? Hehe
thank you)
The Four Criteria-Proofs that an auditor is guilty
1. Auditor has a duty to the plaintiff
2. Deficient auditor conduct that lead to audit failure
3. Plaintiff incurred damages and losses (real loss, not opportunity)
4. Reliance on the financial statements where the advice is taken
Burden of Proof: Plaintiff
NOTE: It must be established in court that there is a causal connection between the auditor’s negligence and the plaintiff’s losses.
How can an auditor minimize the burden of liability?
1. Choosing the clients well.
2. Utilizing engagement letters to avoid/minimize exposure.
3. Following the audit standards and seeking other remedies (i.e. legal counsel)
Thank you so much, Miss, for everything. May God bless you and your family always. Stay safe and stay healthy ^^
Jane Frances Capuyan
Before, I only knew one thing that will make an audtor liable, that is when the auditor conspired with the treasurer to make fraud. Due to this video, I was introduced to what we call as Audit failure that will cause the auditor to face legal liability, then there is auditor negligence, etc.
As an auditor it’s our responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.
There are many factors to consider for an auditor to provide and give it’s very best in his/her service. In the long run, auditor may have audit failure that will cause legal liability, common law or statutory law. But before that, we have to remember always that the auditor has to follow the standards in order not to face audit failure.
As we all know, the auditor can be held liable if and only if there is an Audit failure. So what is audit failure? Audit failure occurs when an auditor deviates from the applicable professional standards in such a way that the opinion contained in his or her audit report is false. Audit failures are frequently associated with inadequate auditor training, failure to exercise sufficient professional skepticism in evaluating management representations, not sufficiently evaluating client valuation estimates, essentially not engaging in any auditing activities at all, and/or creating inadequate audit documentation.
Also, clients can sue auditors if there is a breach of contract between the two entities. Users may sue auditors if the latter fails to identify a material error that ultimately ends up influencing the users' investment decisions. Then, there is Privity Doctrine, a common law principle which provides that a contract cannot confer rights or impose obligations upon any person who is not a party to the contract. The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such. Tort Law- A tort, in common law jurisdiction, is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits a tortious act. It can include the intentional infliction of emotional distress, negligence, financial losses, injuries, invasion of privacy and many other things.
They say, A deal built on trust is easily broken, but a deal built on weakness is hard to get rid of. At the end of the day, you have to remind yourself of the oath, that you are an auditor, guardian of governance, who commits to the code of ethics and uphold the standards. Thank you, Adelante!
Good day, Ms!
I've learned that in case the auditor would not conduct the audit in accordance with the auditing standards (i.e. ordinary negligence), s/he may be sued primarily by those s/he contracted with by virtue of the privity doctrine, and these are the client and third party beneficiary. Moreover, the auditor's legal liability extends to the foreseen and foreseeable third parties should the auditor commit gross negligence or fraud under the Tort Law. However, the burden of proof for the auditor to be proven guilty in such cases lies to the plaintiff, and the requisites to consider are (1) Auditor has a duty of care to the plaintiff, (2) there's audit failure, (3) the plaintiff suffered damage or loss, and (4) the plaintiff relied on the FS or advise.
That being said, the auditor's work is indeed as valuable as his/her reputation as a Professional Accountant. Nonetheless, there are ways to at least minimize his/her exposure to legal liability such as obtaining a legal counsel, exercising professional skepticisim, getting a professional liability insurance, but most especially, choosing extensively who among the potential clients to accept, as this is the very root cause of every possible danger in providing an assurance engagement.
Thank you so much for these informational videos, Ms! We highly appreciate the effort. Stay safe and healthy, Ms! God bless! 🙏
INSIGHT:
Most cases brought by third parties are unwarranted, but with the potential for a larger number of negligence-related cases.
Unless the auditor is sued by a third party when the company is no longer viable, this would be considered unjustifiable due to the termination of the obligation.
The auditor is solely responsible for ensuring that the financial statements are reasonably reported where sufficient assessment is necessary.
THANK YOU FOR THIS LECTURE, MISS!
Insight:
On 6:09 it states that, even when the auditor does the audit right in the very best way he can and in accordance with the standards, there is still that risk that the opinion is inappropriate. An auditor can only be held liable if there is an audit failure and audit failure only happens when the auditor abandons the standards of practice. An auditor therefore, cannot be held liable for as long as he perform his audit in accordance with the auditing standards.
Good morning Miss! Pax et bonum!
Insight:
According to Felix I. Lessambo, common law liability arises from negligence, breach of contract, and fraud while statutory law liability is the obligation that comes from a certain statute or a law which is applied to society. The scope of both common law liability and statutory liability has been expanded to include certain third parties, mainly the foreseen or foreseeable users of audited financial statements.
In this video, it was discussed that the client and the third party primary beneficiary are the parties that can sue the auditor for breach of contract, they can sue the auditor because of failure to practice the standard.
The auditor is responsible for providing reasonable assurance, not absolute assurance so there are possibilities of audit risk but if it is done in accordance with the standards the auditor is not liable and that means that he is not negligent.
Hello Miss!!
Insight:
•The auditor, client and 3rd party primary beneficiary is covered by the privity doctrine. Thus, only the client and the 3rd party beneficiary can sue an auditor for breach of contract and ordinary negligence.
• The foreseen (not specifically identified but known to the auditor) and forseeable (farthest from the auditor) 3rd party need the tort law to bring legal action against the auditor in cases of gross negligence or fraud.
•An auditor performing an audit according to the standard and the very best he can is not liable because the primary responsibility of the auditor is to give reasonable, not absolute, assurance. He can be liable only if there is an audit failure.
Insight:
I thought before that in the event that the client suffered losses after the auditor performs the audit, the auditor is liable for such matter. Thank you miss for making this video I was able to fill the gap of what I need to know more in auditing. I have learned that as long as the auditor follows the Standards in performing the audit, gives reasonable assurance and provides professional skepticism. Whatever losses the client may encounter after performing the audit, the auditor is not liable for such result. But in the event that the auditor did separate the standard in performing the audit and is ordinary negligence of such matter, the client and the primary beneficiary can sue the auditor which is covered by privity doctrine. On the other hand, any foreseen and foreseeable third who suffered losses due to auditor's gross negligence and fraud in performing the audit, they can gain their justice by suing the auditor which is covered by the tort law.
Thank you again miss for extending your time in making this video and for helping us to learn more despite of what is happening right now. God bless you always miss 🙏
Insight:
I've been hearing this ever since I started studying BSA and the possibility for me to become a CPA and an external auditor is more surreal. "Dagko baya na sila sweldo", "Dali ra kaayo na ila trabaho, pirm pirma ra.", most likely the same comments from either my family and relatives or those close friends in the province. Now I'd like to lay out this gist, it might be true that most of the time, the comments above is true. However, being a CPA or an external auditor is not easy. One single tiny mistake may cause a big problem not only to those who are directly concerned but may also affect those who are indirectly connected. Being an external auditor, let's say, requires a competitive skill and careful skepticism. The physical skills are already given and the only part were everything boils down is the ability of the auditor to practice excellent professional personal judgement and practice excellent avoidance to negligence.
The external auditor's finished job is another one's data for its job and and another one's and so forth.
Good evening Miss.
-Insight:-
Let's go back to the basic responsibility of an auditor - he gives reasonable assurance that the financial statements is free from material misstatements. He expresses a conclusion that provides the intended users with a level of assurance about the subject matter. Legal liability against the auditor can be filed against him by the client and third party primary beneficiary only for the breach of contract as opposed to the privity doctrine. Foreseen and foreseeable third parties can only file a case against the auditor for negligence and fraud with the tort law. As long as the auditor has performed the engagement with integrity and in accordance to the standards, he will not be held liable. To prevent this from happening, he should always first carefully get to know his clients.
Thank you and God bless Miss :)
The common law and statutory law are sources of law which serve as the basis on kinds of cases filed against
auditors such that when they are accused of breach of contract, gross negligence or fraud. Common law is the body of law derived from judicial decisions of courts and similar tribunals. Statutory Law is a written law, enacted by a legislative body.
To assimilate who are allowed to bring a case against an auditor in a court of law, the personalities related to the audit report are presented. The said personalities include the auditor, client and third party primary beneficiary who are specifically identified and known to the auditor. These three has a contractual relationship protected by the Privity Doctrine. They are therefore the ones who can sue the auditor for breach of contract and/or ordinary negligence.
On the other hand, the personalities who are not specifically identified but known to the auditor are the foreseen third parties and foreseeable third parties (party farthest from the auditor). They must avail the Tort Law to be able to carry out legal actions against the auditor for the claimed injury whether due gross negligence or fraud (actual or constructive).
In circumstances where the auditor was unable to detect material misstatements, he would not be liable if he performed the report in accordance with the auditing standards. As the auditor is only limited to giving a "reasonable assurance", even if he is able to perform the audit in the best ways he can, the audit risk is still extant.
The plantiff, having the burden of proof, must be able to prove to the court that the accused auditor is guilty and deserving of the punishment and charges against him through these given criteria;
1. Auditor has duty of care to the plaintiff
2. There was an audit failure
3. Plaintiff suffered damage or real loss
4. Plaintiff relied on the FS or the advice given by the auditor.
The auditor must bear in mind that there are varied ways he can well perform the audit while minimizing his exposures to legal liabilities. In the end, we could say that auditing is really not as easy as it seems to be as it requires conducting oneself in a professional manner accompanied with honesty, sincerity, diligence, etc.
Good day, miss!
Bonjour Miss! 😊
What I learned from this video are the following:
1) Sources of law for a possible case filed against the auditor are
a. Common Law
b. Statutory Law
2. There is a contractual relationship between the client and the auditor.
3. Three primary parties which are covered by the PRIVITY DOCTRINE are the auditor, the client and the 3rd party primary beneficiary.
4. Who can sue the auditor for breach of contract? Only the client and the 3rd party benificiary.
5. Foreseen 3rd parties and forseeable 3rd parties are covered by TORT LAW for them to bring legal action against ghe auditor.
6. TORT law is engaged in cases where there is an allegef injurt due to
a. gross negligence
b. fraud
7. What needs to be proven in a court for an auditor to be found guilty?
a. Auditor has duty of care to the plaintiff
b. Audit failure
c. Plaintiff suffered damage or loss (real loss not opportunity loss)
d. Plaintiff relied of the FS or advise of the auditor.
8. How do auditor's minimize exposure to legal liability?
a. Choose your clients well.
b. Utilize engagement letters.
c. Follow the standards, perform it with due care and exercise professional skepticism.
d. Seek for legal remedies
Merci beaucoup Miss Uy! Au revoir 💕
Good day Miss!
Insight:
-The Auditor's Legal Liability can extend from Clients and 3rd party primary beneficiary (due to breach of contract and ordinary negligence) to foreseen and foreseeable 3rd parties (due to gross negligence and fraud).
-Fraud can also be constructive other than being actually committed.
-It is important for the auditor to screen and investigate the client before accepting the engagement so as to minimize legal liabilities. The auditor should also exercise professional skepticism, make use of legal counsel, professional liability insurance, use engagement letters, etc.
-Auditors will not be liable so long as they have followed the standards in best way they can. Then again despite all the efforts, they can only give REASONABLE assurance.
Thank you Miss 😊
Good day, Miss!
Insights:
- Auditors are liable both Civilly and Criminally.
- Only the client and the 3rd party primary beneficiary can sue the auditor for breach of contract and ordinary negligence.
- While, foreseen 3rd parties and foreseeable 3rd party , by Tort Law, could bring legal actions against the auditor in cases of gross negligence and fraud.
-Undetected material misstatements but performing in accordance of tge standards doesn't held the auditor liable because he/she is not negligent and given that the only responsibility of the external auditor is to provide reasonable asaurance. Only that there is an Audit failure
Amit, Madieleine
Good afternoon, Ms.
Dealing with an engagement, particulary audit, involves a couple of people, users that are directly or indirectly affected to audited financial statements or an auditor's opinion. Thus, it only means how crucial and empirical an auditor's role is.
I can't certainly tell how good and reliable a CPA is, but a committed and competent CPA or external auditor considers a high regard of respect to all Accounting and Auditing Standards and other related Frameworks and Regulatory Compliances pertinent to its practice.
Choosing a client well is basically a good start as a preventive measure to high risk exposure of legal liability. Knowing the entity's profile and background is essential before/or during engagement.
Audited financial statements or even auditor's opinion is not a 100% guaranteed nor a perfect basis, because of human nature that we are susceptible of committing mistakes, audit risk is still apparent that opinion is inappropriate even though the auditor does the audit up to his best ability in accordance with the standards. Hence, an auditor can only be held liable if these four criterias are present: (1) Auditor has the duty care of the plaintiff. (2) Auditor failure or failure to comply with the standards. (3) Suffered a real loss. (4) Plaintiff's reliance on financial statements.
But as far as the law is concerned, there is a presumption of innonce until proven guilty of the crime with which he is charged beyond a reasonable doubt.
Hi, Miss! I have learned that auditors are responsible to two groups: (1) Known users of the financial statements - Client and 3rd Party Primary Beneficiary, and (2)Those that rely on the financial statements - Foreseen 3rd Parties and Foreseeable 3rd Parties. However, only the client and the 3rd party primary beneficiary can sue the auditor for breach of contract and ordinary negligence since they are covered by the Privity Doctrine. On the other hand, the foreseen 3rd parties and foreseeable 3rd parties need the Tort Law to sue the auditor for Gross Negligence and Fraud. In addition, an auditor can only be liable if the plaintiff proves that the auditor: (1) Neglects his/her duty of care, (2)Fails to Audit, (3)Made the plaintiff suffer real loss or damage, and (4)Is guilty of causal connection between negligence and the plaintiff's loss. Thanks for this, Ms. :))))
Insight:
In the privity doctrine only the client and the 3rd party primary beneficiary can sue the auditor for breach of contract due to ordinary negligence or for not being able to give reasonable assurance. However, those foreseen 3rd parties and foreseeable 3rd parties lies in the tort law where there is gross negligence and/or fraud.
Insight:
The client and 3rd party primary beneficiary is covered by the privity doctrine, which gives the client and 3rd party primary beneficiary the right to sue the auditor for breach of contract due to ordinary negligence. Ordinary negligence as what is discussed is the failure to exercise reasonable care in performing services.
Foreseen 3rd parties and foreseeable 3rd parties need the Tort Law to bring legal actions against the auditor. Where there is gross negligence/constructive fraud when there is lack of minimum care and fraud whether actual or constructive.
Auditors can be held liable when there is an audit failure, where the auditor abandons the standards of practice. Auditors can't be held liable as long as the auditor performs in accordance with he standard, with due care, and with an attitude of professional skepticism.
Thank you miss 😊
Good day miss!
Insights:
*There are sources of law that is filed against the auditor which are the common law and statutory law. Common law are those written opinions prior to the court while statutory law, those are being passed by the legistlation.
*It is stated or shown in the video that when the auditor performs the audit according to the standards, he is not liable. On the other hand, he is liable when there is some failure in his audit or when he didn't follow the standards.
Thank you miss!
Hi Miss!!
INSIGHT: Auditors are always expected to be independent and competent in doing their jobs since they play a pivotal role in keeping the client's financial statements free from material misstatements. They should possess skills that are important in doing a fair job. And they should complete their tasks in good faith and integrity because they are well aware that there are instances that an auditor can find themselves in legal trouble, which can definitely give them a bad reputation if they do their jobs in bad faith, dishonesty, and negligence.
Stay safe & healthy too, miss!!
Insight:
As I was reading some research papers after watching this video, I have come to know that if the auditors fail to modify the audit report on FS that are materially misstated, investors and other creditors may experience substantial losses, and as a result of litigation against the auditor even with professional liability insurance to cover such losses, sometimes the total amount granted to plaintiffs is more than the amount that can be recovered from the insurance.
And auditors/public accounting firms are somehow required to make further payments to the plaintiffs to recover from losses.
Discussed in this video includes the sources of law which are common law and statutory law. It is also discussed who can be the plaintiffs or the people who could sue the auditor. They are the third party, primary beneficiary third party, foreseen third party, and foreseeable third party. The first two mentioned can sue the auditor because they are bound to privity. The last two mentioned could sue the auditor by the use of Tort Law. The Tort Law could be violated by gross negligence and fraud that can either be constructive or actual fraud.
There are four criteria to be considered to sue an auditor mentioned in the video. An auditor can be sued if he is not following the standards whether the financial statements are presented fairly or not. An auditor cannot be sued if he is following the standards regardless of the presentation of the fs.
Good day, miss!
Insights:
- In cases where the auditor, performed an audit but was not able to meet the standards and regulations given the fact that he did everything what he had to do, thus affecting not only the person covered in privity doctrine but also the foreseen and forceable party, then he is only liable to the client and the 3rd party beneficiary because he was not negligent. He provided reasonable assurance not absolute assurance and there is always an audit risk in every engagement. He can only be liable to all affected parties if he abandon his duty and did not follow the standards.
- to bring legal actions to the court against the auditor for him to be convicted, there are 4 criterias. 1.The auditor has a duty of care to the plaintiffs or the parties, 2. The auditor fails to do this job right 3. The plaintiff suffered real loss 4. The plaintiff relied on the FS or the opinion that was issued by the auditor. Well, the plaintiff should have an evidence for these
- To avoid or mitigate exposure on legal liability auditor should always choose his client thoroughly and always follow accounting standards and principles for it might affect legal damage to him in the future!
Thank you, miss😊
Insight:
If the external auditor failed to meet the requirements of the standards in the conduct, not everyone can automatically sue the auditor directly. Under the Doctrine of Privity of contract, only the clients (BOD) and the 3rd party beneficiary can sue the auditor for breach of contract since they are considered the primary party of a contract which is recognized by the law. On the other hand, those persons that do not belong to the privity contract like the foreseen 3rd parties and the foreseeable 3rd party need the TORT Law to sue the auditor.
Despite the auditor to meet the requirements of the standard or was able to perform the audit, there is still a possibility of audit risk. In this case, even if a loss occurs, the auditor is not liable. Moreover, for the auditor to avoid or minimize legal liability, one must really know its client and always follow the auditing standards with professional skepticism.
Thank you, Miss! :)
Hi Miss! Hope you're keeping safe :))
If the auditor fails or neglects to meet the standards, he can be sued by the parties who have given the reliance on him regarding the financial statements. Only the clients and the third-party primary beneficiaries can sue the auditor for his breach of contract and ordinary negligence covered by the Privity Doctrine. The others, primarily the foreseen the foreseeable 3rd parties, need the Tort Law for them to bring legal actions against the auditor.
Insight: In the matter of question as to WHO can sue the auditor because of breach of contract, ordinary negligence or violations of confidentiality. There are only few people who can sue the auditor which party that are covered by the Privity Doctirine, such as the client and the third party primary beneficiary. On the other hand the Foreseen 3rd parties and the Foreseeable 3rd party, in order for them to sue the auditor, they need the Tort Law which involved cases such as gross negligence or fraud to bring legal action against the auditor. As what I've understand the gross negligence means a lack of minimum care but is also equivalent to fraud although it is not intentional.
If the Auditor followed the standards of practice, which means he did the audit right (gives them a reasonable assurance) and there is still an audit risk that the opinion is unsuitable although the client or the bank suffered such losses he will not be liable unless if there is an audit failure or the way he audit is not according to the standards. If the auditor is guilty of such, there are criteria’s to be followed in order to prove that he is guilty : (1) Auditor has a duty of care to the plaintiff (2) there is an Audit failure (3) The Plaintiff suffered losses or damages (4) Plaintiffs relied on the FS or advice of the auditor.
The parties involved in an audit assurance is not limited to the three parties discussed previously, namely the Practitioner, Responsibile Party and the Intended User, for the Third Party Primary Beneficiaries, Foreseen Third Party and Forseeable Third Party are also involved in an audit engagement. The Third Party Primary Beneficiaries are those known to the auditor. The client, along with the third party primary beneficiaries are the only ones that can sue the external auditor for breach of contract because the contractual realtionship between these parties are covered by the Privity Doctrine.
On the other hand, the Foreseen and Foreseeable Third Parties does not have the same rights as to the third party primary benefieciaries and the client since they are not covered in the Privity Doctrine and they need the Tort Law to bring legal action against the external auditor. Instances where these parties can bring legal actions against the external auditor are : gross negligence and fraud.
The auditor is held liable only with the presence of audit failure and this happens when the auditor fails to perform the audit according to the standards. Therefore, for as long as the auditor performs the audit in accordance to the standards, the external auditor cannot be held liable.
There are 4 criterias to be considered in identifying when can an auditor be charged guilty.These are the following:
•Auditor has duty of care to plaintiff
•Audit Failure
•Plaintiff suffers damage
•Plaintiff relied on the FS or advise.
At the end of the day, it is still the auditor's responsibility to keep himself away from extreme exposure to legal liability and this can be done through choosing your clients well, practicing professional skepticism and due care, and most importantly, through following the audit standards.
Hi misss!!! Insights: Being an auditor has its legal responsibilities and by this it means that as much as possible he must do his job with professional skepticism and due care for he can be sued for giving an inappropriate assurance most especially if the clients and other 3rd party primary beneficiary has greatly relied on his report. In addition, forseen and foreseable 3rd party could also sue him thru Tort law. However,for as long as the auditor has exercised due care and has followed the general auditing standards and there has been effects that are not good for the client and primary beneficiary,he cannot be sued for he has not been negligent and he is just exposed to audit risk and human as we are,it is inevitable to commit error. For as long as he has performed his duties well, there's nothing he should be worried about
Good Evening Miss!!
Insight:
Only the client and the third party primary beneficiary can sue the auditor for breach of contract, this may be because of the ordinary negligence or failure of the auditor to perform his duty or services with reasonable care to his client (Privity doctrine). While the foreseen third parties and foreseeable third parties need the tort law to bring legal actions against the auditor if it is involved only in gross negligence and fraud. But if the company incurred a loss while the auditor performs and complies with the auditing standards then he is not liable for that event, considering they only give a reasonable assurance and there are still risks that may occur for the opinion of the audit report.