The issue of auditor's liability is included in the syllabus for Paper P7, Advanced Audit and Ass... more The issue of auditor's liability is included in the syllabus for Paper P7, Advanced Audit and Assurance. Candidates need to understand and apply the principles of establishing liability in a particular situation, as well as being able to discuss the ways in which liability may be limited. The specific learning outcomes can be found in the Syllabus and Study Guide. This article focuses on the issue of auditor's liability in the UK, and therefore contains references to the UK Companies Act 2006, as well as UK-specific legal cases. Candidates other than those attempting the UK adapted paper are not expected to have UK-specific knowledge. The concepts discussed in this article however are broadly relevant and will help candidates to understand why this is an important issue within the auditing profession. Over the past two decades the bill for litigation settlements of Big Four audit firms alone has run into billions of dollars. Examples include Deloitte's 2005 settlement of $250m regarding its audit of insurance company Fortress Re and PwC's $229m settlement in the lawsuit brought by the shareholders of audit client Tyco in 2007. Auditor liability is increasingly concerning, both in terms of audit quality and the reputation of the profession but also in terms of the cost to the industry and the barriers this creates to competition within the audit market. This article considers the current legal position of auditors in the UK. It also discusses the impact on the competitiveness of the audit market and some of the methods available to limit exposure to expensive litigation.
The issue of auditor's liability is included in the syllabus for Paper P7, Advanced Audit and Ass... more The issue of auditor's liability is included in the syllabus for Paper P7, Advanced Audit and Assurance. Candidates need to understand and apply the principles of establishing liability in a particular situation, as well as being able to discuss the ways in which liability may be limited. The specific learning outcomes can be found in the Syllabus and Study Guide. This article focuses on the issue of auditor's liability in the UK, and therefore contains references to the UK Companies Act 2006, as well as UK-specific legal cases. Candidates other than those attempting the UK adapted paper are not expected to have UK-specific knowledge. The concepts discussed in this article however are broadly relevant and will help candidates to understand why this is an important issue within the auditing profession. Over the past two decades the bill for litigation settlements of Big Four audit firms alone has run into billions of dollars. Examples include Deloitte's 2005 settlement of $250m regarding its audit of insurance company Fortress Re and PwC's $229m settlement in the lawsuit brought by the shareholders of audit client Tyco in 2007. Auditor liability is increasingly concerning, both in terms of audit quality and the reputation of the profession but also in terms of the cost to the industry and the barriers this creates to competition within the audit market. This article considers the current legal position of auditors in the UK. It also discusses the impact on the competitiveness of the audit market and some of the methods available to limit exposure to expensive litigation.
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