Liabilities of Auditors to Third Parties – A Comparative Analysis Between the Position under Common Law and in Malaysia

Abstract

Auditors and accountants are subject to all laws that govern behaviour generally. More specifically, the responsibility of an auditor are influenced by a combination of relevant professional and legal requirements. In determining what is the necessary professional audit standard and practice, the expertise, knowledge and experience of the auditing profession will be taken into account. Further, auditors are also accountable with legal responsibility for their examination and reports that they render to the company. The legal hazards facing auditors are numerous and generally are very difficult to foresee in relation to any particular audit. Any breaches of their statutory, contractual duties can expose them to potential litigation by injured parties and even to the risk of criminal prosecution under certain circumstances. Thus the objective of this paper is to evaluate the nature of professional negligence and the extent of duties of auditors to third parties who may seek to place reliance on the audited financial statement. In discussing the scope of auditors liability, a comparative study will be to the made position in Malaysia and in England.