L22 Notes_Part_15 - Auditor exercise of due diligence Lack...

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Chapter 17: P6 a. The shareholders of a large, multinational firm bring a class-action lawsuit under common law against the audit firm. They charge that the audit firm was grossly negligent in its responsibilities in that it failed to detect a material management fraud that ended up pushing the firm into Chapter 11 bankruptcy. •No responsibility to plaintiff •Lack of reliance by the plaintiff •Auditor exercise of due diligence •Lack of auditor intent to defraud •Contributory negligence by management
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Chapter 17: P6 b. The shareholders of a retail women's clothing chain bring a lawsuit against the audit firm charging that the audit firm was negligent in not making a large write-down of some obsolete inventory. When the need for the write- down later became public, the company’s stock lost 25 percent of its value in one day. •No responsibility to plaintiff •Lack of reliance by the plaintiff
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Unformatted text preview: Auditor exercise of due diligence Lack of auditor intent to defraud Contributory negligence by management c. The creditors of an aerospace concern that has defaulted on its secured debt file suit against the accounting firm that performed a review and some tax work for it. Chapter 17: P6 d. The shareholders of a large retail drug store chain file suit against the auditors when it comes to light that the managers have been embezzling large amounts of money from the company treasury. The audit firm had substantially complied with professional standards in its audit but the managers had colluded in such a way that detection of such a fraud would have been difficult in any circumstances. No responsibility to plaintiff Lack of reliance by the plaintiff Auditor exercise of due diligence Lack of auditor intent to defraud Contributory negligence by management...
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L22 Notes_Part_15 - Auditor exercise of due diligence Lack...

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