AUDITOR: THE DUTIES

AND LIABILITES
DUTIES OF AUDITOR
Cont.
 DUTIES OF AUDITOR
 CARRY OUT AN AUDIT
 Audit work must be carried out first by checking
the accounts/financial statements
- whether they have been properly drawn up
- prepared in accordance with the rules approved
by the Malaysian Accounting Standard (s.244)

 The auditor must check that the accounts so

prepared are free from errors so as to ensure
that the accounts have prepared that can give a
true and fair view of the company’s financial
position.
Cont.
 In carrying out the audit work, an auditor should adopt
suitable/ adequate test to check the internal control of the
company whether it is reasonably relied upon as an
effective protection – see section 246

 There is no specific way of doing audit work. An auditor

needs to come out with his own procedure as to how an
audit work should be done.

 Case:
a) Leeds Estate Co v Shepard
b) Pacific Acceptance Corp Ltd v Forsyth
 MAKE A REPORT
 Section 266 : Section 266 (1)(a)(b) and (6)

 A report must be made to the members on the

accounts, balance sheet and P&L account, group
accounts after the audit work has been carried
out

 The report contains a professional opinion as to

the truth and fairness of the financial position as
shown in the accounts

 Report made must be reliable and independent

Cont.
 The content of the report: section 266 (2) (3)

 Effect of the report: Section 266 (12)

 The auditor must not only form an opinion as to

the truth and fairness of the company’s financial
statements, but also report as regards to the
possibility of fraud if he suspected it.
Cont.
 A report must also be made to the appropriate
level of management – if there is any possibility
of fraud

Cases: Re London & General Bank

Pacific Acceptance Corp Ltd v Forsyth

WA Chip & Pulp Co Pty Ltd v Arthur Young &

Co
Cont.
 If there is any breach or non observance of the
CA 2016
– report must be made to the Registrar
– s.266 (8)

 In the case of public company, if the auditor in

his opinion that a serious offence involving
fraud and dishonesty is being or has been
committed against the company, must made a
report in writing to the Registrar
– s. 266(9),(10),(11) Companies Act 1965.
 BE INDEPENDENT
 Section 264(1)

 To ensure unbiased report by the auditor.

 An report that may show a true and fair view of the

financial statement of the company

 No need to break off all other connections with the

company

 Does not mean auditor have to work all alone: section

266(4) & (5)
Cont.
 He is still entitled to seek assistance from the officers of the
company

 The element independent requires the auditor to use his

own opinion based upon what he has audited

 The auditor should not rely upon the officers – it must be

based upon his own mind/opinion if not the report would be
biased as it is not formed on the independent opinion of
such auditor

 Auditors who relied upon the employees of the company to

make an opinion breach their duty

 Case: Dominion Freeholders Ltd v Aird

 EXERCISE SKILL AND CARE
 As an expert, an auditor has a contractual duty to use
reasonable skill and care

 However he is not responsible if he fails to detect non-

compliance of all laws and regulations in audit of financial
statement

 Standard of skill and care required: a reasonable

 If the company suffered losses because of failure to

exercise skill and care reasonably expected from an auditor
– he is then liable to be sued for breach of contract/duty
Cont.
 An auditor who has used reasonable degree of
skill and care that been required upon him, is not
liable if he failed to detect errors or fraud in the
account.

 In a normal circumstances, he may rely upon the

word of the officer who is in charged with the
keeping of the company’s record provided there
is no reasonable suspicion.

 Case: Wong Kok Chin v Singapore Society

of Accountants
 WHAT AMOUNT TO REASONABLE
DEGREE OF SKILL AND CARE?
 It is what a reasonable honest and right
minded person would consider fair and
proper.

 What amount to reasonable depends on

the particular circumstances of the case
and may change according to time.

 Case: Re Kingston Cotton Mills and Re

Thomas Gerrard & Sons.
Cont
 The standard of care and skill expected on auditor in early
cases:

a) Re Kingston Cotton Mill Co (1896)

“An auditor is not bound to be a detective….. He is a

watchdog and not a bloodhound. He is justified in
believing tried servants of the company in whom
confidence is placed by the company. He is entitled to
assume that they are honest and to rely upon their
representations provided he takes reasonable care..”

b) Re London & General Bank

Cont
 The standard of care and skill at the present time

a) Re Thomas Gerrard & Sons Ltd(1968)

– new scenario of standard of reasonable care and skill

• The duty to audit the company’s account with reasonable

care and skill remains

• But the standards of reasonable care and skill are more

exacting today than those which prevailed in 1896.

b) Pacific Acceptance Corp Ltd v Forsyth(1970)

 RIGHT AND POWERS
 Access to books/accounts- s.266(4),(5)

 Attend the general meeting – s. 266 (7) and

section 285 (1)

 Right to be heard –s.277()

 Enjoy qualified privilege for any statement and

report made by the auditor in the course of his
duty as an auditor – section 286