Audit Meaning | Definition of Auditing

Running head: AUDITING
Auditing
Name of the Student
Name of the University
Author’s Note

1AUDITING
Table of Contents
Question 1........................................................................................................................................2
Introduction..................................................................................................................................2
Requirement 1..............................................................................................................................2
Requirement 2..............................................................................................................................2
Requirement 3..............................................................................................................................3
Requirement 4..............................................................................................................................3
Conclusion...................................................................................................................................3
Question 2........................................................................................................................................4
References........................................................................................................................................8

2AUDITING
Question 1
Introduction
Negligence from the end of the auditor is a serious offence in the audit profession which
leads to the development of liabilities of the auditors. Auditors’ liabilities create legal
proceedings and lawsuits against the auditors (Alzola, 2017). This report discusses about
different aspects of auditors’ negligence.
Requirement 1
The legislation of tort of negligence provides the right to any third party to sue the auditor
in case he/she involves in breaching the duty of care which creates loss for the third party. Three
elements of the tort of negligence are discussed below:
1. Duty of Care – This element of tort of negligence states that OEV has duty of care towards
Framed as it is responsible for auditing the financial statements of the client and issue
appropriate audit opinion through assessing the acquired audit evidence (Goudkamp, 2017).
2. Breach of Duty – This takes place when OEV fails in fulfilling its duty of care for acting
reasonably in some aspect. Duty of care is violated in case OEV does not act in a reasonable
manner for preventing predictable damages to Framed. More specifically, this can be breached in
case OEV is negligent in the audit of Framed (Rahman & Bremer, 2017).
3. Damage – This can be considered as the loss suffered by Framed because of the incorrect act
of OEV. This also refers to the amount of money that might be paid to Framed as a
compensation for the damage suffered due to the negligence of OEV (Goudkamp, 2017).
4. Relationship between Breach of Duty and Damage – The lost and damage of the plaintiff
must be due the violation of duty of care. In the provided case, the users of the audited financial
statements of Framed like VicBank and other creditors might face loss and damage as there was
material misstatement in sales.
Requirement 2
There are situations where wrong audit opinion is issued by the auditors even after
correctly conducting the audit procedures and this creates audit risk. It means errors in the