Page 56 - AAA Integrated Workbook STUDENT S18-J19

Chapter 43 4

3.1 Duty of care

A duty of care exists when there is a special relationship between the parties, i.e.
where the auditors knew, or ought to have known, that the audited financial
statements would be made available to, and would be relied upon by, a particular
person (or class of person).

3.2 Duty of care breached

The auditor will have exercised due professional care if they have:

 Complied with the most up-to-date professional standards and ethical
requirements.

 Complied with the terms and conditions of appointment as set out in the letter of
engagement and as implied by law.

 Employed competent staff who are adequately trained and supervised in
carrying out instructions.

3.3 Loss suffered as a direct result

This is normally a matter of fact. For example, if X relies on the audited financial
statements of Company A and pays $5 million to buy the company, but it soon
becomes clear that the company is worth only $1 million, then a loss of $4 million has
been incurred. current or previous audit engagement and their implications for
continuing the relationship.

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