Auditors' liability : finding a solution
Lee, Boh Lin
Neo, Yen Ping
Date of Issue1995
College of Business (Nanyang Business School)
The objectives of this project are to examine the impact of litigation against auditors and to study the various ways to minimise or avoid auditors' exposure to liability. This report begins with a discussion of controversial legal issues pertaining to auditors' liability in the last few decades. It also lists the causes and consequences of uprising lawsuits. Since the widening expectation gap is one main cause, it is further discussed in the following chapter and the ways to bridge it are also examined. To minimise auditors' exposure to liability, auditors can practise defensive auditing. The report examines ten most commonly used defensive measures by CPA firms worldwide. In addition to defensive auditing, the accounting profession can lobby for legislative reforms to limit their liability, four of which are amendment from joint and several liability rule to proportional liability rule, statutory cap on damage awards, incorporation of CPA firms and limited liability partnership. Last, a survey was conducted to gather opinions on the above issues and the results are presented in this report. From the survey, it is found that many auditors feel that it is moderately likely that the rising litigation level will infiltrate Singapore. In the auditors' opinions, the three most effective defensive measures are adequate guidance, supervision and review; acceptance of engagement only if firm is qualified and competent; and exercise of caution in high risk areas. In addition, about 88% of the sample is aware of at least one of the legislative reforms, the most widely known being incorporation of CPA firms. Majority also feel that there is a widening expectation gap in Singapore and in overseas. However, they are not optimistic of closing the gap.
Final Year Project (FYP)
Nanyang Technological University