Chap 1 Notes_Part_13

Chap 1 Notes_Part_13 - 4. Auditors are becoming insurers...

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Competition and Cost Cutting
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Legal Liability for Inadequate Performance Pros: 1. 2. 3. Cons: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
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Legal Liability for Inadequate Performance Pros: 1. Punishes worst performers -> ensure minimum standards 2. Bad press from court cases stimulates profession and congress to improve audit quality 3. Better bad firm suffer than good firms bear the cost of SOX 4. Better workpaper documentation 5. More conservative reporting Leads to a new “socially optimal” auditor effort level 6. Compensates victims of audit failures Cons: 1. Works best in economic downturns 2. Bad firms not always punished; good firms pay higher insurance 3. Nuisance suits raise audit fees
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Unformatted text preview: 4. Auditors are becoming insurers but premiums are not sufficient 5. After the fact, process has glacial pace, and judges and juries make errors 6. Increased costs makes audit fees prohibitive for some companies 7. Death of CPA firm -> concentration in audit marketplace 8. Top technical partners energies diverted 9. Greater difficulty recruiting the best 10.Difficulty retaining managers to become partners 11.Compensates lawyers and provides insurance for rich investors skilled at assessing risk. 12. Legal costs passed on to all firms through malpractice premiums and then passed on to clients via SEC regulation. Companies are less profitable -> less investment...
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This note was uploaded on 10/05/2011 for the course ACG 5637 taught by Professor Monikacaushoulli during the Fall '08 term at University of Florida.

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Chap 1 Notes_Part_13 - 4. Auditors are becoming insurers...

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