The Main Legal Liabilities of Auditors

Posted on: July 25, 2019 by Huntersure

Every year, tax professionals gear up for a lively financial season that starts in January and carries on through the summer when most people choose to begin making their tax payments. For auditors, the entire year is basically one big tax season, so concerns about legal liability and their responsibilities can virtually be under the microscope at any time.

Auditors are vital to the financial industry because they are in charge of enhancing the reliability of financial statements for a myriad of external parties. And given the importance of their job, they can face civil and even criminal charges when it comes to their work performance.

In the past, auditors have been caught up in the middle of multi-million-dollar lawsuits in which they had a hand in claims related to negligence or total dishonesty for personal gain. With this in mind, it’s important to understand the legal liabilities of auditors.

What’s Expected from an Auditor

Independent and competent auditors play a pivotal role in keeping everything above board in fraud cases. Without these professionals, most cases would go under the radar, and many cases are still yet to be uncovered. Auditors are obligated to go about their daily business with due care.

Auditors must possess requisite skills to complete their job fairly while also engaging in a duty to employ those skills with reasonable care and diligence. An auditor is expected to complete their tasks in good faith and with integrity and should operate every day knowing they are liable for negligence, bad faith, or dishonesty.


Many lawsuits brought by third parties are unjustified, even with the potential for a higher number of lawsuits related to negligence. If a third party sues the auditor because the client is no longer viable, it is deemed unjustifiable due to responsibility ending. The auditor is only responsible for ensuring that the financial statements are presented fairly when it comes to appropriate evaluation criteria.

Protecting Against Lawsuits and Claims

There are a number of ways in which an auditor can find themselves in legal trouble, and even if a lawsuit is thrown out or unjustified, it can put a dark mark on their reputation. One way to limit exposure and help pay for representation is to invest in accountants professional liability insurance. This kind of coverage is a safeguard that can help ferry auditors through their legal hurdles while being able to balance out the financial exposures they face during litigation and even trials.

Understanding Auditors’ Roles to Third Parties

Understanding the legal liability when it comes to working with third parties is essential to those in the auditing field. It is generally known that auditors are responsible to two kinds of third parties, including known users of the financial statements and a limited class of foreseeable users who will ultimately rely on the financial statements in question.

The actual shareholders and creditors of the company are the known users of the financial statements that auditors are overseeing. For the second group, if the company is trying to issue new equity or get a loan from a financial institution, the investors and creditor will be known as foreseeable users. So, in turn, even though the auditor doesn’t know the user specifically, they are aware the client will be putting the financial statements to use in some way in order to raise financing.

About Huntersure

At Huntersure, we specialize in providing quality professional liability solutions to accounting professionals. Our Accountant Liability Insurance program provides coverage for accountants, auditors, bookkeepers, and tax preparers, so no matter where your clients lie in the industry they can have the coverage they need to protect themselves and their assets. To learn more about our operation and our Professional Liability Insurance solutions, contact us today at (855) 585-6255.

Posted in: Accounting blog