Who establishes generally accepted auditing standards professional#
This paper explores this link between professional standards and auditors' legal liability. Thus, the vague specification of due care enables auditors to commit to audit quality as pronounced in auditing standards. While auditing standards alleviate some of the vagueness that is inherent in the legal standard, they also form a lower bound on due care, since an audit of a quality that is lower than the quality that auditing standards require would be considered negligent. A liability regime that consists of a vague negligence rule supports and amplifies the credibility of auditing standards. Consequently, courts often resort to Generally Accepted Auditing Standards (GAAS) and Statements on Auditing Standards (SAS) as benchmarks for determining due care. However, what constitutes negligence for auditors is not clearly specified in the law. Auditors who are negligent in conducting their audit are liable for losses that result from reliance on misstated financial statements. This paper expands the set of previously considered liability rules to include a negligence liability rule with a vague specification of due care.
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