Perspectives on Audit - Why accounts need to be audited and can a legal action be brought against auditors if they make mistakes

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1 INTRODUCTION 2

? STAGES IN AUDIT PROCESS 2

2 WHY ACCOUNTS NEED TO BE AUDITED 2

2.1 MISCONCEPTION ABOUT THE ROLE OF AUDITORS 2

2.2 THE DIFFERENCE BETWEEN ACCOUNTING AND AUDIT 3

2.3 THE NATURE, SCOPE AND PURPOSE OF AUDITING 3

THE AUDIT OPINION 4

REPORTING REQUIREMENTS 4

SCOPE OF AN AUDIT OF FINANCIAL STATEMENTS 4

2.4 STAGES IN AUDIT PROCESS 5

3 CAN A LEGAL ACTION BE BROUGHT AGAINST AUDITORS IF THEY MAKE MISTAKES? 5

3.1 LEGAL RESPONSIBILITIES OF AUDITORS 5

3.2 LIABILITY TO SHAREHOLDERS 5

3.2.1 Due Care 6

3.2.2 Negligence 6

3.2.3 Privity of contract 6

3.2.4 Causal relationship 7

3.2.5 Contributory negligence 7

3.2.6 Damages 7

3.3 LIABILITY TO 3RD PARTY 7

3.4 AUDITOR PROFESSIONAL ETHICS 8

4 CONCLUSION 8

Bibliography

Appendix 1

Perspectives on Audit: Why accounts need to be audited and can a legal action be brought against auditors if they make mistakes?

1 Introduction

This report will examine two aspects of auditing, the first aspect to be explored will be; the reason to why accounts need