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statutory liabilities of an auditor

(2) There was no system of internal check. The auditor keeps an eye on undisclosed contingent liabilities. The potential costs and risks of auditing large corporates would increase for auditors outside the Big Four. (3) The amount against the item ‘advances to Contractors and Others’ included the loans to the managing directors but such loans were not specifically disclosed in the balance sheet. The following are the services statutory auditor cannot take of the company or its holding or subsidiary Company. An audit is an examination of … The liabilities have also enhanced the audit quality and reputation of the profession. (3) The company brought an action against the auditors for damages on the ground that the fraud could have been detected by the auditors had they verified the petty cash in hand. (2) Which omits any material fact knowing it to be a material, he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to a fine. The company also alleged that the auditor entrusted the major work to his assistant who did not exercise reasonable skill and care to the audit. The company, in this way, materially reduced the debt due from Ellis & Co. and correspondingly increased the gilt-edged Securities in the balance sheet. Statutory Liabilities means, as to any Insurance Subsidiary, as of any date, the total amount shown on line 21, page 3, column 1 of the 1995 Annual Statements (or any similar line, page and column reference in any subsequent Annual Statement), or an amount determined in a consistent manner for any date other than one as of which an Annual Statement is prepared. His primary duty is to present a report on the accounts and statements submitted by him to members of the company. So it is decided that an mourn should be disclosed on the balance sheet and shareholders should be informed about the utilization of secret reserves. Indian Penal Code imposes a criminal liability on the auditor. He is responsible not only to the members of the company but also to the third parties of the company, i.e., creditors, bankers etc. “Thus, it appears that the auditor, in the absence of fraud,-does not incur liability to third parties who suffered damages for the former’s negligence. Further, the laws provide no protection from threats from litigations under contract law. 13. This loan was never separately shown in the balance sheet. (2) An auditor is guilty of negligence if he fails to detect the over-valuation of work-in- progress when ample materials as evidence are available for testing the accuracy of the figures given to him. Unless he does this, his duty will be worse than a farce. It was held that the auditor is liable in tort to third parties, if the under mentioned points are proved by the plaintiffs: (a) The auditor’s statement was untrue in fact; (b) The auditor failed to exercise reasonable skill and care to ascertain the truth (a part of his duty) knowing that the statement was untrue; (c) The auditor’s statement was intended that the plaintiff should act on it with sound belief; and. Liability under Statute. Vs. Seear, Hasluck and Co. (1904): (1) The clerk of the audit firm compared the petty cash book with the accounts and did not verify the balance of actual cash in hand; (2) The petty-cashier misappropriated the differential amount between the actual cash that should have been and the physical cash balance in hand; and. Ultramares Corporation Vs. Touche, Niven & Co., (1923): The auditors knew that creditors of certain type would use the balance sheet, but they were not aware of the specific creditors. A civil claim can result in fines and sanctions but not incarceration. Account Disable 11. List of Statutory Duties of a Company Auditor. (2) It is the auditor’s duty to ascertain and state the true financial position of the company, at the time of audit, by actually examining the books of the company. (5) One of the shareholders brought a criminal suit against the managing directors under Section 282 of the Companies Act 1913 (now Section 628 of Companies Act 1956 which states – Any person who makes a false statement in any returns, balance sheet, etc. investors, creditors, bankers, tax departments, etc.). Key Words: Auditor, power, duties, liabilities Introduction: An auditor, to perform his duties must have certain powers, without which it may not be possible for him to perform his duties honestly and thereby, he might be held liable for any loss which the company might suffer. (b) Giving False Statement (Sec. 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