Minimise risk of professional negligence claims

A typical lawsuit involves a claim that the auditor did not discover an employee defalcation as a result of negligence in the conduct of the audit. There are many actions that auditors can take to minimize their liability against the risk of professional negligence claims.

Statement 1.203 states that professional independence is a concept fundamental to the accountancy profession and auditor must be both independence in fact and in appearance.

Independence in auditing means taking an unbiased viewpoint in the performance of audit tests, the evaluation of the result and the issuance of the audit report. If the auditor is an advocate for the client, a banker or anyone else, then he or she can not be considered independent. It is therefore, independence must certainly be regarded as the auditor’s most critical characteristic.

It is not only essential for auditors to maintain an indepe

Appropriateness is the measure of the quality of audit evidence and its relevance to a particular assertion and its reliability.

HKSA has detailed ethical rules on independence and some examples are:

3. Understand the client’s business as well as understanding the internal control system

Relevance means that the evidence must relate or be relevant to the audit objective that the auditor is testing. For example, auditor is concerned that a client is failing to bill customers for shipments. A relevant procedure that auditor must take would be to trace a sample of shipping documents to related duplicate sales invoice to determine whether each had been billed not the other way around. Most evidence is relevant to more than one, but not all audit objectives.

Reliability refers to the degree in which evidence can be considered believable or worthy of trust. Evidence obtained from a source outside the entity is more reliable than that obtained from within. When, a client’s internal controls are effective, evidence obtained will be more reliable than when the internal controls are weak. Evidence obtained by the auditor through physical examination, observation, computation and inspection is more reliable than information obtained indirectly. Furthermore, evidence will not be reliable unless the individual providing it is qualified to do so.

Some topics in this essay:
, internal controls, evidence obtained, client’s business, audit evidence, client’s internal controls, professional negligence claims, professional negligence, client’s internal, negligence claims, internal control, risk professional negligence, cpa firm, understanding internal control, risk professional, minimize risk professional,