ugaud.ch20 - Chapter 20: Key Issues/Questions 1. How do we...

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11 Chapter 20: Key Issues/Questions 1. How do we determine if an auditor is guilty? 2. Who can sue the auditor? - Client vs. 3rd party? - Common law vs. statutory law? 3. How are damages determined?
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22 What factors are important in determining whether there is negligence? Is Auditor Negligent? Degree of care exercised Materiality Internal control weakness vs. outside IC Form of Concealment
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33 Degree of Care Exercised : No Liability : Exercise of Reasonable Care Ordinary Negligence : Lack of reasonable care Gross Negligence : Lack of minimal care (synonyms are: ___________ and __________) Fraud : Intent to deceive See Table 20-1 for definitions Is Auditor Negligent?
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44 Materiality: The more material, the more negligent When deciding between ordinary negligence and gross negligence, the more material the error or fraud, the more likely the courts will judge there to be gross negligence Is Auditor Negligent?
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55 Internal Control weaknesses Because auditors are expected to detect material IC weaknesses that permit errors or fraud, if the problems found are within the system of internal controls, it is considered more negligent. When deciding between ordinary negligence and gross negligence, material errors or fraud found within IC system are more likely viewed as a lack of minimal care (gross negligence) Is Auditor Negligent?
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66 Errors or Frauds Occurring Outside Internal Control System If difficult to detect due to management override or collusion, would be not be negligence or would be ordinary negligence, at most Is Auditor Negligent?
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Form of Concealment The more clever the concealment, the more likely the courts will judge there to be no negligence or ordinary negligence, at most. Is Auditor
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This note was uploaded on 05/13/2011 for the course BUSACC 1238 taught by Professor Hoffman during the Spring '11 term at Pittsburgh.

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ugaud.ch20 - Chapter 20: Key Issues/Questions 1. How do we...

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