Abstract Presents a response by Denzil Y. Causey to a letter to the editor commenting on his article "Newly Emerging Standards of Auditor Responsibility," previously published in the January 1976 issue of "The Accounting Review."
Abstract The article focuses on newly emerging standards of auditor responsibility. Although the basic problems confronting present day's auditor have been discussed for nearly 100 years, the newly emerging standards of care, materiality and independence would shock the auditor of past days. The purpose of this paper is to analyze these newly emerging standards of auditor responsibility. Responsibilities of public accountants, like those of other professionals, have increased greatly in complexity since 1931 when a judge held in the Ultramares Corp. case that public accountants are liable to third parties for fraud but not for ordinary negligence. The Ultramares case established stops number one, two and four on the variable scale of duties. The judge reasoned that public accountants also owe a duty to clients, creditors and investors to perform without fraud, which is stop number one on the scale. This has been interpreted to establish stop number two on the scale where auditors owe all third-party users a duty to base their opinions on honest belief and grounds for the belief.
Abstract The article explores the concept of foreseeability as a determinant of the legal responsibility of auditors. Auditors have the ability to foresee that application of conservatism to avoid overstatement; elimination of disclaimers, qualifications and adverse opinions; and uniformity in application of accounting and auditing rules can limit users of financial statements to more realistic expectations. A balancing of the needs of users of financial reports for protection with the effect of imposing liability on auditors forms part of the question of auditor responsibility.