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a) duty of care refers to the responsibility that the auditor assumes towards the client and other third parties whenever they undertake an assignment. The auditor should carry out his work to the best quality standards possible to protect the interest of the parties who have appointed him.
b) The auditor is and cannot be held responsible for the prevention of fraud and error. However, if the auditor comes across any fraud or error regardless of the materiality he should:
- Inform management as soon as possible;
- Carry out further procedures to confirm whether the fraud was an isolated case or indicative of others that had taken place;
- Evaluate whether the fraud could have an impact on his opinion.
- If the error or fraud is material the auditor should consider whether management has adequately disclosed the effect in the financial statements. If there is adequate disclosure there will be no need to modify the opinion. However, if the effect has
not been disclosed in the financial statements the auditor should express a qualified opinion as appropriate
c) The auditor can undertake the following steps to reduce potential liabilities for negligence:
- Undertaking measures to ensure that all assignments are performed to the highest quality standards. The auditor should ensure that the requirements of the International Standards on Auditing are adhered to in all assignments;
- Proper planning of the audit work to ensure that all potential risks that could affect the financial statements are identified and appropriate audit procedures performed;
- Putting in place appropriate quality control policies and procedures and monitoring their effectiveness;
- Limit access to his work or reports, where possible;
- Include a disclaimer of liability clause in the relevant document or report. Example of such a clause would be ? while every care has been taken in the preparation of this document, it may contain errors for which we cannot be held responsible?
- When submitting un-audited accounts or other un-audited financial statements (where the auditor prepares accounts on behalf of the client) the auditor should ensure that the purpose for which the statements or reports have been prepared is properly explained on the face of the report.
- Obtaining proper terms of engagement such that the auditor‘s roles and responsibilities are clearly laid out and the client understands his role in the engagement.
Wilfykil answered the question on February 22, 2019 at 07:32
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