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(a) Explain the category of persons to whom an auditor owes a duty of care in the preparation of his audit report. ...

      


(a) Explain the category of persons to whom an auditor owes a duty of care in the preparation of his audit report.



(b) Enumerate the rights accorded to an auditor to enable him perform his duties as the auditor of a company.
(c) In Hedley Byrne V. Heller (1964) the court held that provided that it could be established that a special relationship existed between parties it was possible for a person to sue for having suffered a financial loss even though no contractual relationship existed between the parties.

Highlight the factors that should be established in order for a third party to successfully sue an auditor for professional negligence.

  

Answers


Martin
(a) In preparing his audit report the auditor owes a duty of care to:

- The company: since an auditor is a professional engaged by the company to render certain services he owes the Company a legal duty of care in preparing his report.
- Third parties: an auditor owes a legal duty of care to third parties whom he knew or reasonably ought to have known would rely upon his audit report. To that effect such parties are his 'neighbours' and the auditor may be-
Held liable for loss or liability arising by reason of reliance on his audit report.
- The auditor's legal duty of care is founded on the premise that there is a special relationship between him and the company as well as such third parties.

(b) - Right to examine the company's books, vouchers and other relevant documents.

- Right to access to the Company's books vouchers, accounts etc.
-Right to demand an explanation from officers of the company.
- Right to seek professional advise whenever necessary.
-Right to attend all general meetings of the Company.
- Right to be heard in general meeting on any matter concerning him as an auditor.
- Right to all notices and other communication to members.
- Right to rely on information provided by trusted servants of the company (in absence of suspicion)
- Right to remuneration for services rendered.
- Right to indemnity for any loss or liability arising in the course of discharging his obligations as auditor.
(c) For a third party to successfully sue an auditor in damages for professional negligence it must be established that:
- The auditor was engaged on the premise that he professed to have certain skills.
- The auditor was at all material times aware that his report would be relied upon i.e. he knew or reasonably ought to have known.
- The third party suffered loss of financial nature








marto answered the question on February 7, 2019 at 06:27


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