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In the market economy with fierce competition, the introduction of new types of business diversity, abundance , activity auditing function verification and opinion on a show aimed at strengthening the inspection and control , improve operational efficiency of enterprises increasingly important role . At the same time, the market economy led to the development of complex problems, mix of real and financial status of the accounting profession .This fact requires the auditor must have sufficient professional qualifications, the corresponding field operations to perform its functions .The verification of financial information more difficult leading to increased risk of audit. In recent years, the case of audit firms is increasing in size, number , amount of defense , with the amount of cases that deal with the consequences for the hundreds of millions of dollars . This has caused serious damage to the credibility of the audit profession. In Vietnam ,the bankruptcy of a number of enterprises (including SOEs ) in the past few years have posed a problem : The responsibilities of the auditors ( auditors ) and for audit firm reported audit report was released like? In any case audit and audit firm to pay damages to customers and third-party for loss arising from the use of information in the financial statements have been audited , auditors and audit firms to do nothing to defend in a court case ? ... Research legal responsibilities of independent auditors is a crucial issue to improve auditors' professional credibility , confidence for users of audit reports , create peace center for auditors and audit firms during

the audit , the lowest limit to the damage , unnecessary losses due to lawsuits caused . Due to the importance of the study of independent audit liability should they have chosen the topic " Legal liability of auditors and audit firms to audit reports " to be my topic . With the understanding is still limited, resources are not rich , so diverse sure your project is very much flawed . I would like to receive the comments of the teachers in the accounting and auditing department school for my project is more complete . Finally , I am very thankful to my lecture - Phan Trung Kien for helping me to complete this project .

INTRODUCTION ........................................................................................................................................ 1 Chapter1 The definition of Auditor's responsibility for auditors report...................................................... 4 1.1 Concepts of auditors legal liability in audit firms............................................................................... 4 1.2 Auditors legal liability classification ................................................................................................... 4 Chapter 2: The status of auditor's responsibility for auditors report in VietNam ....................................... 5 2.1 The status of auditor's responsibility for auditors report aboard ..................................................... 5 2.1.1 Some lawsuits related to legal liability of audit firm to the third party....................................... 5 2.1.2 The responsibility of audit firm for customers : .......................................................................... 6 2.1.3 Responsibility for security : .......................................................................................................... 7 2.1.4 Criminal liability : ......................................................................................................................... 7 2.2 The status of auditor's responsibility for auditors report in VietNam ............................................... 8 Chapter 3: Some recommendations for the auditors responsible for auditors report ............................... 9 3.1 Some reasons why the increasing of the number of litigation in audit firm appears ........................ 9 3.2 The solution to prevent the increasing of the number of litigation in audit firm ............................ 12 3.2.1 Toward audit firm ...................................................................................................................... 13 3.2.2 Toward auditors ......................................................................................................................... 14 3.2.3 Toward authorities and VACPA .................................................................................................. 15 3.2.4 Auditors need to do to protect themselves when lawsuits happen ? . ..................................... 15 REFERENCES ........................................................................................................................................... 17

Chapter1 The definition of Auditor's responsibility for auditors report

1.1 Concepts of auditors legal liability in audit firms
Legal liability of Certified Public Accountants (CPAs) is the responsibility of the accountant to the client and third parties relying on the accountant's work. Accountants can be sued for fraud and negligence in performance of duties. In the United States, CPAs have common law liability and statutory law liability. Common law liability arises from negligence, breach of contract, and fraud. Statutory law liability is the obligation that comes from a certain statute or a law, which is applied, to society. Recoveries from these liabilities vary by their source or theory. Some of these theories are: 1.2 Auditors legal liability classification

Privity: CPAs and their clients enter into a contract with an agreement to perform certain services. Liability occurs when there is a breach of contract. This applies to the CPA if they dont perform what they stated in the engagement letter and the client suffers damages. Negligence: Negligence may be viewed as failure to exercise due professional care". Both clients and third parties can sue CPAs for the tort of negligence, which is a wrongful act, injury, or damage for which a civil action can be brought. Negligence can be referred to as ordinary negligence and gross negligence. Ordinary negligence is defined as failure of duty in accordance with applicable standards, and gross negligence is the lack of concern for the likelihood that injuries will result. Fraud: Fraud is defined to be a misrepresentation of a material fact by a person who is aware of his or her actions, with the intention of misleading the other party with the other party injured as a result. Statutory liability: CPAs have statutory liability under both federal and state securities laws. Statutory liability provides cover for defense costs, fines and penalties charged against the firm. Under statutory law, an auditor can be held civilly or criminally liable .

Chapter 2: The status of auditor's responsibility for auditors report in VietNam

2.1 The status of auditor's responsibility for auditors report aboard
2.1.1 Some lawsuits related to legal liability of audit firm to the third party. In 1931 , the Company Ultrmares inability to pay debts , the creditors of the company based on the financial statements and then certified accountants fact, they said that the accountant was guilty of negligence and presented false . Receivables were distorted by adding approximately $ 650,000 in accounts receivable $ 700,000 on a different item. The creditors said that a thorough examination would find this fraud $ 700,000 . The accounts payable account has the same inconsistency. After investigating the issue , the federal court concluded that the auditor was negligent in the audit process , however, the auditor is not responsible for the Company's creditors because Ultramares errors beyond the scope of the original contract audit. Court said that person have just signed a contract with the auditor for audit services can have a ability to certify if these services are provide with careless manner. * Stephens industries litigate Haskin and Sells (1971 ) : 1971 , who bought two thirds of company stock car rental company sued Stephens industries Haskin and Sells audit because the careless in receivables audit. However, under the contract , the audit data of the accounts receivable on the books of the Company shall be kept intact and there is no adjustment in the audit report , the auditors commented specifically stated : " According to terms of the contract , we do not require customers to confirm their balance and did not consider the possibility of any of the trade receivables . " The absence of an adjustment to reflect the amount collected is not specified in " notes in balance sheet " .

Apply " Ultramares theory ," the court of first instance said that does not have a personal relationship contract between the plaintiff and should not exist auditors liability because of negligence of auditors . Court of Appeal also made similar decisions. Currently theory " Ultramares " has been extended : for those who have no contractual relationship with the auditors , but auditors will use that before the financial statements , then if for auditors negligence which caused damage to the this person , auditors will be subject to liability . Despite of the exist of the controversy surrounding the theory of " Ultramares " . Many people believe that whenever auditors the financial statement users or not, auditors also bear liability that negligence , Auditor has caused damage to a third party . 2.1.2 The responsibility of audit firm for customers : CENCO Company Incorporated litigates Seidman and Seidman (1982 ) : Between 1970 and 1975 , the administrator of CENCO , then the senior management was involved in a major fraud that inflated the value of the Company's inventory . This helped the company to get a loan with a lower interest rate and gain money compensate higher fire insurance rates deserve. After the fraud was discovered by an employee of CENCO and reported to the SEC ( Securities and Exchange Commission ) shareholders have filed a lawsuit CENCO Company , the Company's management and the auditors of the Company Company. Company audit arrangements for this litigation by spending $ 3.5 million . Then , the new management of the company on behalf of the Company filed a lawsuit CENCO second audit firm for breach of contract , professional negligence and fraud . The auditor is defended despite efforts the Company has attempted to detect signs of fraud , but most people who exercise in the management of the Company has prevented them CENCO found time fraud . 7th Session of the Supreme Court has concluded that the Company is not responsible for the audit in this case . The wrongdoing of corporate governance CENCO considered appropriate plea against allegations of breach of contract ,

negligence and fraud whether the board is no longer working for the company anymore . 2.1.3 Responsibility for security : Fund of Funds Limited Company litigates ArthurArderse ( 1982) : Fund of Funds Company is an investment company that specializes in buying mutual funds . In the late 1970s , the manager decided to diversify their business operations by making large investments in real estate of gas and oil . Approximately $ 90 million was spent on 400 mine put nature in a compromise with King Resources Company. The agreement was signed by King Resources Fund of Funds and provides that all property is sold on a turnkey basis with satisfactory price for the two sides . An important event in this case is the auditing company Arthur Anderse audit for both the Company and King Resources Fund of Funds to two separate contracts and audits for both two companies are run by the same test the auditors conducted. During the audit , the auditor found the real estate prices of gas and oil company for Fund of Funds Company higher prices for other customers of King Resources . The auditor did not report this information to the board Fund of Funds and Fund of Funds management is not aware of the fact that in a long time. Fund of Funds Management Board that the Company is obliged to audit or notify them of violating or refusing to compromise either the audit. The auditor said that the company is responsible for information security under the terms of the ethics of the ethics rules . Federal Court decided auditing company to pay damages to the shareholders of the Fund of Funds 80 million, the highest judgment for auditit firm to date at that time. 2.1.4 Criminal liability : During the audit process , if there are auditors serious violation, the auditor may be subject to criminal liability in the case SIMON conditions UNITED STATES (1969 ) : This case involves three auditors sued for submissions fake report to a state agency violated the law and stock exchange in 1934 .

End of this lawsuits, three auditors fined a total amount of 17000 USD and lost certification CPA under 501 of the ethics rules ( act of losing credibility ) and was forced out of job . Then , they were pardoned Nixon . It is a typical case occurred in the history of auditing activities . It can be seen that conflicts and disputes between the auditor and the use of information on financial reporting often occurs when people use information in the financial statements regardless of whether damage was caused by one bug .

2.2 The status of auditor's responsibility for auditors report in VietNam

In Vietnam , although no lawsuit against audit firms , but recently , the phenomenon of businesses , including businesses bankrupted state tends to increase, a question arises the auditor is responsible for how the audit report was issued ? So did the company claims auditing more and more ? Although Vietnam doesnt has some lawsuits related to the audit company , but now need to consider this issue seriously , there should be coordination of the internal audit activities in order to minimize the unfortunately the damage , enhance professional reputation for financial statement users and create a legal basis for the settlement of disputes , if any. The auditor and the audit firm should try to implement the measures laid out , which need special attention to the issue of training for auditors have issued professional qualifications meet the requirements of the audit . About the authorities , first to perfect the system soon auditing standards . System auditing standards as a basis for the auditor to conduct the audit and main bases to determine whether the auditor is responsible for the errors in the audit report. Until now, the Ministry of Finance issued 37 audit standards , they are the completely basis in audit field. The next problem is with the construction and improvement systems auditing standards , the authorities need to consider cutting research issued legislation on liability of auditors and company audit accordingly . It is clear that in the present situation , the auditing standards system is not fully developed , the

legal documents on the issue of liability has not been issued , the legal experts and stakeholders will face embarrassment and trouble if a lawsuit occurs auditor . We can say no written law can not resolve the dispute in a satisfactory manner and promptly . The experience of countries that have developed audit activities as well as research on the nature of the cases the auditor of history shows that disputes between businesses , the use of information on the financial statements and the auditor may occur in any aspect of the audit : It is possible that the security , independence and objectivity of the auditor ; did not detect the fraud , mistake , breach of co ... So when the issue of the legal documents , the authorities should have the detailed provisions , specifically to avoid misunderstandings and missed cases .

Chapter 3: Some recommendations for the auditors responsible for auditors report
3.1 Some reasons why the increasing of the number of litigation in audit firm appears
1. On the basis of a study of cases have occurred , many expert accountants and legal experts say the main reason leading to lawsuits against audit firms stems from ignorance users of financial statements about the difference between wrong with wrong business audits , between wrong and audit risk audit . Business mistakes happen when business can not afford to pay the debt or when business difficulties , does not meet the objectives of the investor . Causes of business mistakes can be subjective or objective, for example, managers do not have sufficient expertise to make bad management decisions , due to fierce competition and surprise rivals ... The worst case of business mistakes that businesses fall into bankruptcy . Mistake audit shall be construed as auditors mistake in making the audit program inappropriate or non-compliance with the provisions of auditing standards has been recognized to lead to an erroneous conclusion audit.

Audit risk is a concept indicating the existence (in the estimate or actual ) material misstatement in the audit process . Audit Risks include potential risk, control risk and detection risk . Risk is the potential existence of material misstatements in the audited object itself ( not to mention the impact of any operation which audits including internal control ) . Risk control is the existence of material misstatement that the internal control system does not detect and prevent in time .

Found that the risk of material misstatement exists that the audit system undetected . It can be seen that in any audit risks always exist undetected all material misstatements in the financial statements .. The audit was limited by the audit sample , more when the fraud was concealed carefully deliberate way even if it has complied auditors seriously the auditing standards is not well detect material misstatements . " The standards and international accounting principles " admitted: "It's hard to avoid the risk of audits , even documents that still does not explain the error was discovered ." Clause 11 Vietnam Auditing Standards No. 250 also says "always audit risk audit is very difficult to detect all errors affecting critical to the financial statements , even if the audit plan and proceed with caution , in accordance with auditing standards . Causes audit risk include: The system of internal control and accounting systems of units do not meet the full requirements of the laws and regulations related to the operation and financial reporting units . internal control systems and accounting systems have limited potential in preventing and detecting violations , especially violations by failing to comply with laws and regulations . auditors use sampling methods . Evidence of audit judgments and often more convincing than the certainty .

Unit may deliberately conceal their violations (eg, collusion, concealment , forged documents , intentionally false accounting ... ) or deliberately providing false information to auditors " .

So consider to professional activities, the need to take risks as an essential audit objectivity and independent auditing mistakes relative to business mistakes . In essence, only audit function to verify the authenticity and relevance of the information presented in the financial statements accurate and fair . Many people believe that when the audit report is issued, it means the ability to finance the growth and development of the Company's audited completely guaranteed . Ignorance of the users of financial statements has led them to confuse the responsibilities of the audit company and auditors lead to unnecessary litigation , causing damage to both parties to the lawsuit. The cause of the lack of knowledge is mainly due to the market economy , businesses are increasingly fiercer competition , attracting investment , loans from credit institutions play a role important in the development of the business. To achieve its goals , businesses have used the phrase " financial statements audited " as an end , plus the FS does not use some information about the nature of the audit work , the media has the wrong understanding of auditing mistake made by those who use financial statements becoming increasingly serious . 2.Speed economic development of the market economy countries are relatively strong in recent years . Many types of business was born , and with it the development of computer technology . The classic method of accounting is gradually being replaced by the accounting methods more advanced but also more complex , which requires the auditors to have professional qualifications respectively . While training is not uniform auditors , auditor is the team leader and experienced professional is not enough to meet the workload increasing , the auditor does not have enough young fledged professional inexperience should suffer errors in the audit process is unavoidable . Get trained technicians work in our country as an example. Currently, only a handful of universities and major colleges new bachelor university audit as National Economic ... The certification exam practice auditors uniform prescribed

by the Ministry of Finance , however, the number of technicians certified to practice in our country is still very limited . The audits are usually conducted by young professionals. Auditor training program asynchronously and no standard training programs on a national scale. Most audit firms, especially foreign auditing companies in Vietnam are trained technicians in a separate program in accordance with the Company's experience and based on professional judgment , the objective, the company's point about how a auditors qualified professional match object auditing . 3. Those who use financial statements that auditors should detect all errors and fraud may have on the financial statements . In this regard , " The standards and international accounting principles " stating " preventing and detecting any fraud , errors are the responsibility of the business manager ," so it should not and does not auditors can ask discovered all errors and fraud . 4. General Psychology of the damage due to the use of financial statements is the desire to be compensated regardless of who is at fault and the first object that comes to mind is usually the auditor .

3.2 The solution to prevent the increasing of the number of litigation in audit firm
Audit activities related to the interests of many objects , especially very closely related to the interests of the business operations of the enterprise . Thus , along with the affirmation increasingly important role of audit activities , the problem of determining liability of auditors and audit firms in disputes , lawsuits also essential . The case of audit firms is increasing in size , the number and nature of complexity , the amount of damages and compensation . Faced with that reality , the urgent issues raised is the auditors , audit firms , the authorities need to do in order to minimize the cases by considering that the lawsuit does not cause damage to both the plaintiff and the defendant but also detract from the audit profession . And in the worst case , auditors and audit firms to the court , they need to do to defend yourself , minimize legal liability for the audited report was released ? Liability of auditors and audit firms should be applied in Vietnam how to fit the current situation ? This is a complex issue needs a thorough study of the serious authorities , experts and legal audit . within the framework of the course project , I would like to set out some very general recommendations , preliminary issues :

3.2.1 Toward audit firm It is possible that the main reason causing the plaintiff 's case that the use of financial statements due to the lack of understanding the nature of the audit function , they do not distinguish the fault of the business, where the auditor 's fault . So the company audit , the auditors should coordinate with the authorities , the mass media to take measures to improve understanding of the financial statement users , enabling them to see the difference between business mistakes , errors and audit risk audit . The auditor should have strategic customer development and customer classification match . Audit risk and liability of audit firms will increase as the auditor for the audit received more notoriety businesses or business activities often have difficulty ... not only that the company received the audit for audit firms also lowered the company's reputation . Therefore, the auditor should consider carefully studied before accepting the offer audit services . The auditor needs to train qualified technicians skilled , so companies need to have appropriate training and supervision of the organization of the auditors rigorously , seriously . Currently, the team is not enough bravery auditors young and inexperienced business is relatively large , so to ensure the quality of audits and auditors help the children with actual friction , the auditor is necessary to the right job , the layout auditors experienced mentor and supervise them in the audit process . The audit firm should take all necessary measures to ensure that all members of the company have mastered the professional standards of business processes and the legal documents involved. The audit firm should keep careful audit appointment letter, contract audit ... because these are important documents in responsibilities, and obligations of auditors and business and is evidence of validity when brought before the court. The audit firm needs to have good legal advice in order to help the company in any given moment, especially when the unfortunate happens disputes. The audit firm should purchase appropriate insurance for each and every audit lawsuits. This work is essential to avoid damage to the company.

3.2.2 Toward auditors First of all , technicians must regularly cultivate self- knowledge , improve professional and timely grasp of standards changes , the legal documents relating to the profession , to train themselves to be deeper understanding of the various business areas for the audit profession , auditors will collide with many types of business . Absolute compliance with professional standards in the absolute need to respect three basic principles of an CPA is independent, impartial and confidential. Technicians to maintain the independence of the audit: an independent investigation , independent judgments and conclusions read up . Auditor need all the skepticism and only allowed to believe in yourself, do not let the material interests or pressures that dominate .The fact that some 40 % of cases are caused by auditor too easy to accept the explanation of the pressure customers and material should have made a mistake. Auditors should have sufficient knowledge and concepts accurately secret to avoid unnecessary litigation ( as in the case of Fund of Funds Ltd. Arthur Anderse event in 1982 and the company mentioned above ) . Auditor need to fully understand the characteristics of business customers , such as organizing field operations ... Lack of understanding of the business of customers will make embarrassing auditor in the audit process and thus susceptible to errors . Auditor should strive to achieve a quality audit : a quality audit requires auditors to gather sufficient audit evidence and appropriate , since it is the lightning that are reasonable . At the time of the audit process , auditors need to appreciate the performance of internal control system so that there are methods to collect appropriate evidence . Auditors record , store and use good paper work in the audit process to ensure that the audit was conducted in a scientific manner , on schedule . And when it is necessary, the working papers used as evidence in a legal dispute .

3.2.3 Toward authorities and VACPA Need to regularly review the complete, revised audit rules, norms and principles profession: general business and financial operations in particular are constantly changing and becoming more complex magazine, so for audit activities more aligned with the business situation of enterprises, the standards need to be developed consistent, timely, as a basis for our audit. There are useful measures for monitoring the macro-audit activities on a national scale. Construction and completion of legal documents which should detail the responsibilities of the parties involved when there is a dispute, cause of action in each case. The auditing associations should develop regulations to protect auditors . These regulations shall not be inconsistent with the laws and still meet the needs of those who use audited . Develop regulations on cross-examination in order to enhance the quality of audit work . 3.2.4 Auditors need to do to protect themselves when lawsuits happen ? . In the opinion of many jurists and experts independently audit the unfortunate case to defend themselves in court , auditors need to thoroughly exploit and manipulate the following 4 ways to defend themselves : The condition of the plaintiff which are not part of the contract auditor is not responsible . For example, if invited auditors audited by special request, not audited annual financial statements , the auditor accepts no responsibility for the audit report . Most valuable evidence to save themselves auditor is fully documented " audit appointment letters " , " Explanation of the Administration " " Or Contract Auditing " ... The lawyer said that " the audit appointment letter " is the most powerful evidence is the highest legal value because there are clearly defined corporate responsibility and accountability of auditors . Auditors must try to prove in court that the audit was conducted in accordance with professional standards and regulatory documents individual concerned . If there is fraud or misrepresentation is not legal , it is not the fault of the auditors of the entire record in the auditor's working papers . On the other hand standards also recognize that the responsibility for preventing

and detecting fraud and all the errors are not the auditors that the management of the business .


Nowadays, in the world, Auditing field is facing major challenges. The lawsuit audit companies are increasingly affecting the credibility of the audit profession, the issue of expanding liability of auditors and audit firms frequently mentioned. So to ensure occupational prestige, enhancing the role of audit activity in the market economy, to minimize damage in the case, in each country, the auditor, the auditor and auditing associations should have the right solution to protect themself and protect careers. In Vietnam, it is no small omission if until now the problem of liability independent auditors are not given seriously to study. Experience in developed countries shows that auditors and audit firms are more thorough methods of "active defense" much earlier, with the improvement of the system and the audit standards legal documents, the system will limit the unnecessary loss, enhance the reputation of the auditing profession much.


1. International Auditing Standard 2. VietNamese Auditing Standard 3. Nguyen Quang Quynh & Ngo Tri Tue, 2012, Financial Auditing, 3rd Edition, National Economics University 4. Arens, Elder & Beasley, Auditing and Assurance Services, 14th Edition.

Auditors legal liability in audit firm in Vietnam