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Degree of wrongdoing
Liability to clients
Liability to 3rd parties
Liability of the CPA under the NIRC
Section 321 C
Legal Liability of the Independent
Auditor
Liability to clients
- obliged to exercise due professional care
during the engagement including adherence to
professional standards and ethics.
- failure to exercise this degree of care may
constitute negligence and breach of contracts to
render professional service.
-Honest errors does not constitute negligence so
long as he exercised due professional care.
Legal Liability of the Independent
Auditor
Liability to clients
-undetected widespread fraud not detected by
auditors
- inadequate procedures were performed
- auditor is negligent
- client is entitled to recover any losses to which
the auditor’s negligence is the proximate cause
- client may also recover the audit fee for
auditor’s breach of contract.
Legal Liability of the Independent
Auditor
Liability to third parties
– Auditors are liable to all foreseeable third
parties for losses which are caused by the
auditor’s fraud or gross negligence.
Legal Liability of the Independent
Auditor
Liability of the CPA under the NIRC
– Ensure client pays the right kind and proper
amount of tax
– Second responsibility – interest of the govt.
(BIR)
– Not obliged to investigate info. Provided by
taxpayer but cant just disregard clues that
cast doubt on the accuracy of these data.
Legal Liability of the Independent
Auditor
Liability of the CPA under the NIRC Section 321 C
– Wilfully falsify report
– Certifies FS containing essential misstatement of facts
or omission of transaction –taxable income,deduction,
exemption of client
– Not being an independent CPA doing the examination
and audit of taxpayers’ books
Penalty:
- Fine of not exceeding P5000 and imprisonment of not
less than 2 years, plus cancellation of CPA license.
Limitation on Auditor’s
Responsibility
If circumstances indicate the possible
existence of fraud & errors, the auditor
should consider the potential effect on the
financial information.
If material, auditor should perform
appropriate modified and additional
procedure to confirm or dispel such
suspicion