Ethical Obligations and Decision-Making in Accounting 2nd Edition by Steven Mintz, Roselyn Morris

Exercise 3

What is meant by the auditors’ “near privity” relationship?  How does this differ from the “privity” relationship with a client with respect to establishing an auditor’s legal liability to a client?

Step 1 of 2

Audit:

The audit is defined as a systematic examination of books of accounts of an individual or an organization. Auditing is done by the professional CPA; we call them auditors.

Auditor:

The auditor is the person hired by the owner for a systematic examination of books of accounts of the company. The auditor uses its professional knowledge and gathers evidence. It should be a question minded, plan, and being alert to the condition of the misstatement due to fraud and error.

An auditor can be sued in a court by a client and outsiders who believe he violated the law and suffered harm from the materially misstated financial statement.