audit report, the auditor shall compensate for the damage, unless proof exists that his duties were performed with due professional care."(n129)
In addition to auditing, a CPA can perform other services including the preparation of financial statements, the performance of research and development, consultation on financial affairs, as well as tax and management consulting services. However, the CPA is prohibited from performing tax and management consulting services for their audit clients.(n130) This again is quite different from U.S. standards.(n131)
In Canada, as in the U.S., the purpose of an audit is for an independent auditor to express an opinion on the fairness of presentation of the company's annual financial statements prepared by the company's management.(n132) Corporate legislation requires that the shareholders appoint the auditor(n133) and that the auditor provide the audited financial statements to the shareholders within six months of the company's year-end.(n134) Audited financial statements may also be required by various creditors.
According to the Canadian Institute of Chartered Accountants' (CICA) Handbook,(n135) which outlines the codified generally accepted auditing standards, it is assumed that material errors and frauds will be discovered if Canadian GAAS is followed. However, it also states that an audit examination may not reveal all material errors and frauds inasmuch as the prevention and detection of errors and fraud rest with management and the auditor has no separate or additional responsibility for their detection.(n136)
The legal liability of auditors to shareholders of the client company for negligence is determined through the incorporation instrument.(n137) However, the auditors' legal liability to third parties for negligence was established through legal precedent in the 1976 case of Haig vs. Bamford.(n138) In Haig, the auditor was found liable to a limited class of third parties because the auditor had actual knowledge that this limited class would be relying on the audited financial statements.(n139)
The Criminal Code of Canada additionally prohibits an auditor from attesting to the fairness of a company's financial statements when the auditor knows they include negligent misrepresentations. "The liability of an auditor to shareholders of the client and to third parties in circumstances when the auditor is judged guilty of such activities appears to be absolute."(n140)
Canadian public accountants may perform an array of services beyond attesting services including the preparation of special reports, prospectuses, unaudited financial statements in which the level of assurance provided is less than that of an audit, unaudited interim financial statements, supplementary information associated with the financial statements, and forecasts.(n141) In addition, public accountants may also perform tax and management consulting services. Auditors may perform any or all of these services concurrently as long as they do not compromise their independence.(n142) But, as in the U.S., the independence of the public accountant would be impaired if the auditor functioned in any capacity as an employee or if the auditor had a stock ownership interest in the client company.(n143)