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Question: Discuss the argument that a limitation of auditor liability will widen the audit market for large companies beyond the Big 4 accounting firms.
FM208 Assignment - 2nd Year Undergraduate, Accounting. Mark: 63%
Answer: An audit is a professional, independent assessment of a company's financial statements with regards to the generally accepted accounting principles.
Auditors have a duty to the shareholders of the company they are performing the audit for, in the UK system this is set out in the Companies Act (1985). It states that auditors are liable to the shareholders for any negligent performance of statutory duties. Cosserat (2004) sets out these guidelines for when auditors are liable to compensate a plaintiff, damages are owed if:
• A duty of care is owed to the plaintiff;
• The audit is negligently performed or the opinion negligently given;
• The plaintiff has suffered a loss as a result of the auditors’ negligence; and
• The loss is quantifiable.
This means that when an auditor is found to have negligently expressed the financial position of a company, the audit firm is lia...(short extract)
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- Subject: Business and Management
- Course: Accountancy and Finance
- Level: Degree
- Year: 2nd/3rd
- Mark: 63%
- Words: 2160
- Date submitted: May 06, 2015
- Date written: January, 2007
- References: Yes
- Document type: Essay*
- Essay ID: 6537
