Acca aaa s21 Notes

September 2021 to June 2022 exams
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September 2021 to June 2022 exams
Watch free ACCA AAA lectures 
38

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Chapter 7
AUDITORS’ LIABILITY
1. Introduction
Auditors’ and accountants’ liability can arise from three branches of the law:
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Statute:
for example if the accountant has been appointed as a liquidator of a company they 
can be regarded as officers of the company and could be subject to criminal proceedings. This is 
rare.
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Contract law:
the letter of engagement sets out what the auditors and the client will do. For 
example the auditors undertake to give reasonable assurance about the financial statements. If 
the auditors carry out their work with due care and skill they will not be liable under contract 
law.
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Tort law:
the tort of negligence allows any injured party, not necessarily a party who has a 
contractual relationship with the auditor, to pursue the auditor for damages if they have 
suffered loss caused by the auditor’s negligence. This is the area where there is potentially most 
difficulty.
2. The tort of negligence
An injured party has to show three things if the tort of negligence is to be proved:
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That a duty of care exists. The act of the accountant must be sufficiently close to the damage 
(proximity). This is presumed to exist between an auditor and the audit client. However, with 
other relationships this is more difficult to establish.
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That the duty of care was breached.
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That the breach caused financial loss.