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Reforming Auditor Legal Liability: Government, Practitioners and Scholars - Essay Example

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When having to develop organizational activity managers in modern firms have to take into account a series of criteria having in mind that the market conditions tend to change continuously under the influence of political and social changes but also the conditions in the global…
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Reforming Auditor Legal Liability: Government, Practitioners and Scholars
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In the case of auditing the major challenge for governments internationally has been to choose the appropriate criteria in order to develop an effective legal framework that will regulate all aspects of this activity providing the mechanisms for the enforcement of the relevant rules and the effective protection of the public interest. In Britain, the liability of auditors is emphasized through many legal provisions; however the effectiveness of these rules has been doubted especially if taking into account the fact that the conditions in the market change constantly and a continuous update of the rules regulating auditing – as also all other aspects of commercial activity in the country – is required.

The specific issue is examined in this study using both the literature and the empirical research. The results indicate that current legal framework for auditing in UK is effective but it should be adequately supported by the government in all its aspects. Changes were possibly proved to help towards the improvement of this framework but they would be based on specific criteria – as it is explained throughout the study. The role of the legal liability of auditors in the increase of the effectiveness of auditing has been strongly doubted through the years.

In the literature, different approaches have been used in order to justify the existence of legal provisions that establish the legal liability of auditors regarding the documents/ reports produced as a result of auditing across a specific organization. In accordance with De Sankar et al. (2002, 353) ‘increased legal liability increases the auditors effort and audit accuracy but reduces the demand for high quality auditing because, apart from the increased audit costs, the adverse selection benefit of the worse type reduces with increased accuracy’.

Of course, different outcomes could be possibly observed while trying to establish specific auditing

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