Explain the category of persons to whom an auditor owes a duty of care in the preparation of his audit report.

In preparing his audit report the auditor owes a duty of care to:
• The company: since an auditor is a professional engaged by the company to rendercertain services he owes the Company a legal duty of care in preparing his report.
• Third parties: an auditor owes a legal duty of care to third parties whom he knew orreasonably ought to have known would rely upon his audit report. To that effect such parties are his “neighbours” and the auditor may be
• Held liable for loss or liability arising by reason of reliance on his audit report.
• The auditor‟s legal duty of care is founded on the premise that there is a special relationship between him and the company as well as such third parties.

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