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Chapter 83 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:

 Applied the most up-to-date accounting and auditing standards.

 Adhered to all standards of ethical behaviour laid down by the relevant
professional bodies.

 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 $5m to buy the company, but it soon becomes
clear that the company is worth only $1m, then a loss of $4m has been incurred.
current or previous audit engagement and their implications for continuing the
relationship.

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