Development in Auditing

AUDITORS DUTIES & CHARACTERSTICS IN THE CHANGING ECONOMIC ENVIRONMENT

An auditor should act honestly and with reasonable skill and care. If he fails to perform it, he may be sued for the damages. Reasonable skill and care depend upon the circumstances of the case. He should not rely on the arithmetical accuracy of the books but he has to make sure that such books were properly made up to show the results of the operations for a stated period. (Gay and Simnett, 2007)

There were several cases in past where the auditors’ duties and characteristics were laid.

In Kingston Cotton Mills Co. the facts of the case were:-

a. The company was under liquidation and the liquidator took action against the auditor to recover the dividend which was paid out of capital.

b. The inventories were overstated to boom the profits which was not realised in real terms.

c. Reliance was placed on certificates issued by the managers, instead of doing physical verification of the inventories. (Gay and Simnett, 2007)

Lord Justice Lopes laid down the auditor’s duties as follows:-

a. Auditor has to perform his work with skill, care and caution which a careful, diligent and cautious auditor would perform under given circumstances.

b. What should be reasonable skill and care depends upon the circumstances of particular case.

c. Auditor need not be a detective and not required to approach with suspicion during approach to audit or with the conclusion that something is wrong.

d. Auditor has to assume that the people working in the company are trustworthy and reliance can be placed on them in obtaining any evidence for the completion of audit.

e. Where in the opinion of auditor he suspects there may be chance of error or fraud he is required to go the root of the matter, otherwise he is bound to exercise reasonable skill and care. (Gay and Simnett, 2007)

In another case Pacific Acceptance, the scope of auditor’s duties was comprehensively exposed.

The facts...