Accountant's liability

An accountant's liability is the potential legal risk that an auditor bears for not spotting misstatements in a client's financial statements. If the auditor does not spot these misstatements and the financials are then sent out to users with a clean audit opinion, the auditor is liable for losses suffered by the users. These losses could be substantial, since a lender might lend funds based on the clean opinion, and investors may buy a company's stock for the same reason - and then lose their money when the company fails. The presence of this liability forces auditors to be unusually thorough in examining the books of their clients. Auditors pay for professional liability insurance coverage to protect themselves from lawsuits, which drives up the cost of audits.

Related Courses

Guide to Auditor Legal Liability
How to Conduct an Audit Engagement