The auditors are responsible to provide a duty of care in delivering the auditing services to the clients. External auditors will be liable to the client as well as the third party who have relied on the financial statements upon which they expressed an opinion. However, there is no general standard for the expected level of skill and care required for carrying out an audit assignment.

Required:

a)Describe FOUR (4) auditor's legal liability of negligence to the client and the third party respectively as prescribed under the common law of the audit profession.

[8 marks]

b)Relate with example any TWO (2) factors that may increase the legal action against the auditors. [5 marks]

c)A lawsuit alleging deficiencies in engagement performance, whether the allegations are true or not, can damage a CPA firm irreparably. Propose any SIX (6) ways the external auditors can take in managing their exposure to such liability.[12 marks]