acc562 week 9 discussion 1

acc562 week 9 discussion 1 - Case9AFredStern&Company...

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Based on your analysis of the “Fred Stern & Company” case, respond to each of the discussion points: Auditors’ legal responsibilities differ significantly under the Securities Exchange Act of 1934 and Securities Act of 1933. Discuss the differences and why they may exist. Discuss how auditors’ litigation risks differ under the common law and the 1934 Act. Discuss how the legal process has shaped the financial statement package that most companies presently provide to third parties. Auditors’ legal responsibilities differ significantly under the Securities Exchange Act of 1934 and Securities Act of 1933. Discuss the differences and why they may exist. The differences between the auditor's legal responsibility under the Securities Act of 1933 (the 1933 Act) and Securities Exchange Act of 1934 (the 1934 Act) are because the 1933 Act imposes a heavier burden on the auditor. Any third party who purchases securities described in the registration statement may sue the auditor. Third party rights as presented in the 1933 Act are: 1. Third party users do not have the burden of proof that they relied on the financial statements or that the auditor was negligent or fraudulent in doing the audit. 2. They must only prove that they suffered a loss and that the financial statements were materially misleading or not fairly stated. The burden of proof shifts to the auditor. The auditor has a greater burden in that he or she must prove that: 1. The statements were not materially misstated.
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acc562 week 9 discussion 1 - Case9AFredStern&Company...

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