The due care defense is based on the prudent person concept. This defense implies four things:
The auditor possessed the requisite skills to evaluate accounting entries.
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Auditor Defenses for Negligence
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The auditor employed such skill with reasonable care and diligence.
The auditor undertook his task(s) with good faith and integrity.
While the auditor may be liable for negligence, the auditor is not liable for errors in judgment.
Auditor Defenses to Fraud
The auditor should be liable only if inadequacies in their audit resulted in failure to detect the fraud.
Fraud requires an intent to deceive another part or scienter. In such cases, the auditor acted with knowledge of a false representation.
Unlike negligence where the auditor might have made a careless statement, fraud requires the belief that representation was false.
Fraudulent intent means a representation was made with reckless indifference to the truth or falsity.