Role of Auditors: Civil and Criminal Liabilities

Concerns about the legal liability of auditors continue to grow every day. Auditors are highly important people because, ultimately, they are responsible for enhancing the reliability of financial statements for all kinds of external users. Like other professionals, they can face civil and criminal liability in the performance of their duties. Without independence and competent auditors, many fraud cases worldwide would've gone unnoticed. The code of professional conduct states that auditors must go about their business with due care. There are a number of reasons why CPA's/auditors can face civil or criminal charges: breach of contract, negligence, and fraud also known as gross negligence. To limit their liability auditors should use engagement letters, which documents and confirms the auditors acceptance of the appointment, the objective and scope of the audit, the extent of the auditor's responsibilities to the client and the form of any reports. Any breach of the stated terms can be a valid reason for legal action.
CPA's/auditors must also, investigate potential clients, incorporate quality control standards, use professional skepticism, consult legal counsel, and purchase professional liability insurance to help minimize exposure to legal liability.
Auditors are liable both civilly and criminally. Civilly, an auditor can be found liable under the common law or a statutory law liability. Common law liability arises from negligence, breach of contract, and fraud. Statutory law liability is the obligation that comes from a certain statue or a law which is applied to society. The scope of both common law liability and statutory liability has been expanded to include certain third parties, mainly the foreseen or foreseeable users of audited financial statements. I think, if an audit is performed in a professional manner it can hold up in a court of law.