Categories: Recommended Practice GuidesPublished On: 24/11/2005


Auditing – Guidelines




This guidance is issued to assist practising members in clarifying their responsibilities under the Companies Act 1965 in relation to the auditor’s report.


The Institute would like to draw members’ attention to a Scottish judgement in “Royal Bank of Scotland v Bannerman Johnstone Maclay and others” relating to an auditor’s duty of care to third parties.

In this case, the Scottish Court of Session held that a company’s auditor could owe a duty of care to a bank if they knew (or ought to have known) that the bank would rely on their client’s audited accounts and did not clarify their responsibility.

The Judge in making its judgement said that:

“It was in my view open to the defenders, when they learned that the pursuers were entitled to see the audited accounts for the purpose of informing their lending decisions, to disclaim responsibility to the pursuers for the consequence of any reliance that they placed on the audited accounts for that purpose. If such a disclaimer had been made, it would in my view, in the circumstances of this case, have been impossible to infer from the fact that the audited accounts were provided in knowledge of the purpose for which the pursuers were likely to rely on them that the defenders had assumed such responsibility. The absence of such a disclaimer, despite the fact that one might have been made, is a circumstance which, in my opinion, enables the inference of assumption of responsibility to be made.”

The full text of the judgement is available at

Clarification Wording in Auditor’s Report

Given that the establishment of liability under Malaysia law has so far tended to follow the same route in law as the UK and certain other common law jurisdictions and although the court decision in this case was a preliminary order and is subject to an appeal, the Institute considers that it is important to provide further guidance to practising members on appropriate action which they may wish to take to help clarify their existing responsibilities.

The Council recommends that practising members who seek to clarify their responsibilities adopt the following clarification wording in the statement of auditor’ s responsibility of the auditor’s report prepared for the purpose of satisfying the requirement in section 174 of the Companies Act 1965:

“It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act 1965 and for no other purpose. We do not assume responsibility towards any other person for the content of this report.”

An example of unqualified auditor’s report with this wording included is attached as Appendix I to this guidance.

Auditor’s Responsibilities

The Council wishes to emphasise that the inclusion of this recommended wording in the auditor’s report does not alter the responsibilities of auditors to their clients and does not mean that auditors will never agree to take on responsibilities to third parties.

Auditors are still required to carry out their audit in accordance with approved Standards on Auditing. This additional wording only clarifies that their duty is to the members of the Company and that auditors will accept only duties that are expressly agreed.

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