Auditors' liability Essay Example | Topics and Well Written Essays - 1500 words

Auditors' liability - Essay Example Scandals such as those of the Bank of Credit and Commerce International (BCCI), Barlow Clowes, Atlantic Computers, Coloroll, Ferranti, Homes Assured, Levitt, Queens Moat Houses, Resort Hotels, Eagle Trust, London United Investments, Maxwell and Polly Peck have resulted in loss of jobs, savings, investments, pensions and taxation revenues. (Mitchell et al, 1991) The audit of a company's financial statement poses a certain degree of risk for the auditors and the company. The auditors have to objectively audit a company that reflects a true picture of the company. Since the managers depend on the audit to help them understand the current scenario of the company to take future decisions, and investors use the audit to help them take investing decisions, the correctness of the audit carries high stakes for all. (Defintions) Until recently, auditors had unlimited liability towards the public incase of negligence, breach of contract or fraud. Due to this very law, there have been cases in the past that have wiped the company clean due to gigantic compensations. Following the collapse of a company, third parties would often attempt to recover their losses from a solvent and insured auditor. Faced with such claims, the common and civil law courts had to struggle between two conflicting interests: the public's interest in the independent and competent review of financial statements and the interest of the auditing profession in carrying out its function without the burden of a potentially overwhelming liability. (Khoury, 2001) The scandal of Enron and its audit company, Arthur Anderson, were the victims of improper auditing and impedance to justice. There were once the 'Big 8' auditing companies which now have been left with the 'Big 4' after a series of mergers. All over the world, these four companies control about 85% of the total audits. (Lawrence, 2006) Auditor liability has been an increasing concern for the auditing profession for a considerable number of years. Such large liabilities are unfair and unjust to auditors. Consequently, a number of jurisdictions in recent years have introduced measures aimed at reforming their auditor liability regimes. However with the communities becoming increasingly litigious, one wonders when the 'Big 4' would be left with the 'Big 3'. (Lawrence, 2006) Duty of Care Owed A duty of care is an obligation to provide a certain level of care to others depending on different circumstances to avoid injury to that individual or his property. Basically the relationship of the parties, the negligent act or omission is prevented by fore-sighting any loss to that individual. An auditor is expected to be able to foresee such acts and respond accordingly. In cases of unintentional negligence which results in losses, such an act will be regarded as having breached a duty of care and at this a time a duty of care is owed. (Solicitors, 2002) (Definitions) The English Law for duty of care was formed in the Scottish case of Donoghue v Stevenson 1932 SC (HL) 31. The general principles for duty of care to be owed included the presence of three points (Solicitors, 2002) 1. Does a duty of care exist The existence of duty of care depends on the type of relationship between the parties. An auditor of a company has a duty towards the

Critically assess the elements of a successful e-commerce regulatory Essay

Critically assess the elements of a successful e-commerce regulatory model - Essay Example In the last 5 years, the government has contended that the introduction of several layers of regulation based on EU legislation into UK law has increased customer confidence in e-businesses3 and increased these businesses standards of good practice. The implementation of the Distance Selling directive into UK law was to inspire confidence and increase transactions in cross-border shopping, including the internet. The regulation cannot be contracted out and any inconsistencies between the terms of the contract and the regulations would make the contract void. It does not cover contracts relating to auctions, financial services or property and partial exemptions for accommodation, transport, catering or leisure services and goods intended for everyday consumption supplied by regular roundsmen. This information must comply with the principles of good faith in commercial transactions and the principles governing the protection of minors. However, Consumers Internationals5 research revealed that 1 in 5 sites failed to give clear total cost of the transaction despite the fact that the price of goods and services including all taxes must be provided. They have also found very few sites actually providing written information on the right to a contract withdrawal. Subject to the following exceptions , once the supplier has met his obligations relating to the provision of information, the consumer has at least 7 working days to cancel the contract without penalty (the cooling-off period6) : If the supplier fails to meet his obligations to provide information, this period is extended by 3 months. He also has 30 days to repay the amounts paid by the consumer and, in certain cases, may deduct from the refund the costs of recovering the goods. If the consumers payment card was fraudulently used, he may request cancellation of payment and reimbursement of the amounts paid. The burden of proof lies on the card issuer