Auditor's Liability and Conflicts of Interest: A Look at SA 240, Exercises of Business English

Download Auditor's Liability and Conflicts of Interest: A Look at SA 240 and more Exercises Business English in PDF only on Docsity! Do you think that audit firms should totally liable for a client company which fails due to fraud or negligence, or is auditors'limited liability fair? The audit firm is not liable for errors caused by fraud or negligence of its client company. And the auditor is not liable for any errors in the client's financial statements. SA 240 - The Auditor’s Responsibility Relating to Fraud In An Audit Of Financial Statements deals with the auditor’s responsibilities towards frauds in the financial statement audits. According to SA 240, one of Auditor’s Responsibilities mentioned is: Obtain reasonable assurance that the financial statements are free from material misstatements The auditor gives an accurate audit opinion based on the information provided by the audited entity and is liable for his opinion on errors in the client's financial statements. During the audit, if misstatements are detected, the auditor has the right to perform tests of controls to detect fraud. Determine whether this is fraud or error and request the client company to correct it. Auditor is not liable for the Prevention and Detection of Fraud. Management has the Primary responsibility for the prevention and detection of fraud and not the auditor. Management should take all necessary steps for fraud prevention and deterrence through implementing policies and controls. One of the auditor's responsibilities mentioned in SA 240 is: Should know that Risk of non-detection of management fraud is greater than of employee fraud. The conditions of directors are direct or indirect in manipulating the recording of accounting books, presenting fraudulent financial information or controlling the established audit procedures.