Litigation against Auditors

Auditors are charged with responsibilities of ensuring the accounting records are properly audited. The report should reflect the actual records of financial events that occurred in the system of a company or an organization. However, there are cases where an auditor fails to carry out his or her activities according to the requirement of the set by the accounting board. This discussion evaluates the procedures and the reason for litigation against auditors, especially in his or her line of duty of auditing an organization. It also focuses on the steps and the basis of such disputes.

Common triggers for plaintiffs to initiate a lawsuit against external auditors

Several reasons can make plaintiffs trigger a lawsuit against an external auditor.Is legally liable in terms of both criminal and civil duties. Their chief role is to detect fraudulent activities in the financial sector, and they must follow a code of conduct set by profession. There are three categories of plaintiff that can trigger a lawsuit for an auditor. One of them is the client. One such reason is a breach of contract. An auditor is expected to obtain an engagement letter. A violation of such an engagement could result in a valid reason for legal action. The case of a  breach of contract common when an auditor fails to identify the material evidence in the audit process; therefore, he or she arrives at a wrong decision based on the opinion presented.

A user or a third party can also file a lawsuit against the auditor on cases where an auditor commits negligence. This is a case where an auditor fails to take and also has presented to identify a material misstatement.The government does also have a reason to file a lawsuit against an auditor. It is a case where the auditor commits fraud in his line of duties. Gross negligence can also lead to a government filing a claim against an auditor.These, therefore, form the basis for the lawsuits against an external auditor.The third party must also have concrete information on the liability of the auditor to of negligence or fraud hi presents against them.

What auditors have to prove to avoid liability for the plaintiffs’ losses

An auditor must be ready to determine that the lawsuit against them is unjustified. in many occasions lawsuits by plaintiffs against the auditors are not valid. A case is where a third party sues the auditor because the company being audited is not a viable company. This case may not be justified since it is not the responsibility of the auditor to make sure that the company is sustainable and is likely to continue operating in a longer time. The central role of the auditor is to make sure that the financial statement for the company is presented in a fair way against the established evaluation criteria. In other case cases, the auditor can be sued in an example of a phenomenon involving audit risk. Audit risk is a  risk that an auditor does all things in a correct way or to the best of his ability. However, the auditor expresses inappropriate audit opinion on the financial statement. It is a  situation that deals with errors in the financial report that is unrevealed even after a thorough audit with all the rules provided by the government body. They are associated with lousy lack situation.An example of such a case is where were an auditor decides to pick a sample from a population for the audit purpose. The error, in this case, may originate from the unfortunate situation which is not the responsibility of the auditor. However, in a case where the auditor does not comply with the stated guideline as outlined by the governing accounting body, it will be justified for anyone involved o to file a successful lawsuit for the crime of audit failure.

Type of auditors that would ‘particularly’prefer to settle with plaintiffs

The case of negligence is one of the primary reasons that a   plaintiff can use to file a lawsuit against the auditor.Instead of filing a lawsuit, it becomes essential for some auditors who find it better to settle such cases with the plaintiffs.  The major types of auditors who prefer this kind of settlement are those that are involved in fraudulent activities and that they want to coordinate with the plaintiff to avoid accountability for their actions. This kind of arrangement may also be deceitful and may cause the auditor to lose his permit in case of a discovery by a higher body.

The real-world case of audit litigation

One of the litigation cases recorded was between the Westpac Banking Corporation and 789TEN Pty Ltd. The Westpac case proved that the legal position of the auditor is the collection of evidence to form an opinion about the location of the financial statements. The case involves the litigation involved the removal of money from 789TEN account wihout a paper approval. In this case, the conduct of the audit could not account for such a transaction since it was not placed in a paper.. the case confirmed the legal position of the auditor in the duty of collecting evidence to form an opinion in Australia. It, however, highlight a great abnormality under the law as it aims to produce a representation letter as a piece of audit evidence in the case of the policy of agenda.The claim was made complicated by the fact that the bank refused to give the auditor the information of the transaction; therefore the auditordcould, not detect your account the deal due to lack of d evidence.. the bank further denied the taking responsibility for allowing the payment process.  Westpac, therefore, applied for an order from the court to prevent 789TEN from accessing the audit letter on the account that they were subject to the legal professional advantage under the act.

The decision of the case at the first trial revealed that the letters were confidential documents. The conclusion of the incident showed that there was no agency relationship between the  Westpac Solicitors and the  789TEN bank. Therefore the case did not find the auditors reliable for the miss presentation of the information about the finance since they did not have access to such information. The auditors had no obligation to force the bank to produce the receipts since they had no relationship with the bank.

Upon appeal by the Westpac, the court of appeal maintained the decision that the central role of the auditors was to use the information as presented by the company’s book of records and not to investigate the conduct of a third party. , therefore, found the auditors not liable for the misrepresentation of information and opinion as claimed by the company. This shows that the relationship between the company and the third party is not on the reach of the auditors. It makes the management to be responsible for such information.

Based on the case provided, there are several factors to determine on the extent to which the plaintiff can put the defendant into account. In the case of the argument for the example of Westpac, the plaintiff, who is the manager of the company, against the d auditors were based on the fact that it was the role of the auditors to find the material evidence of the transaction and provide accurate information. The failure of the auditor the data from the bank, according to the management was negligence from the side of the lawyers. This, therefore, indicated that the auditors intentionally failed to give adequate information on the transactions of the company. It accounts for gross negligence to the audit, which the company wanted the auditors to be liable for.

In the side of the defendants, who were the auditors, the act of not being able to get information that was required for the audit was beyond their control. In fact,  according to them, it was the role of the company to present them with total information about all transactions. Moreover, it was never their position to engage with a third party who was not involved in the normal operation of the company. The failure of the company to providea dequate information, therefore, led to the gross misrepresentation of opinion from the side of the auditors. The strong argument however against the case was that the auditors tried to access the information from the bank, but they never succeeded due to lack of proper engagement between the to. This, therefore, gives leeway for the audit to confirm their innocent and their scope of  duty in case of a review in any firm

The decision by the judge was clear since it considered the presented information about the case.,.According to the judge, there was no obligation between the auditors and the bank and that the transaction was authorized by the management, even though there was no formal letter to indicate the authorization of the deal. The judges in both the cases hold on to the fact that there was no obligation of the auditors to the bank and that they were not free to get such information from the bank.

In conclusion, the responsibility of the auditors to the firm being audited is based on the information presented them by the company,.. in a case where wrong decisions are made based on the opinion of an auditor, the liability is often placed on the editors, a factor that does not show fairness. In cases where a lawsuit is filed against the auditor, the plaintiff has to prove beyond doubt that the auditor was responsible for the action. In most cases where an auditor engages in fraud, the plaintiff has to show the accountability nature that was neglected and therefore a solution is arrived at by the court.

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