Chapter_5_answers_to_review_questions - Review Questions...

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Review Questions 5-2 The most important positive effects are the increased quality control by CPA firms that is likely to result from actual and potential lawsuits and the ability of injured parties to receive remuneration for their damages. Negative effects are the energy required to defend groundless cases and the harmful impact on the public's image of the profession. Legal liability may also increase the cost of audits to society, by causing CPA firms to increase the evidence accumulated. 5-4 The prudent person concept states that a person is responsible for conducting a job in good faith and with integrity, but is not infallible. Therefore, the auditor is expected to conduct an audit using due care, but does not claim to be a guarantor or insurer of financial statements. Discussion Questions and Problems 5-20 The answers provided in this section are based on the assumption that the traditional legal relationship exists between the CPA firm and the third party user. That is, there is no privity of contract, the known versus unknown third party user is not a
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This note was uploaded on 02/19/2012 for the course ACCOUNTING 320 taught by Professor Rich during the Fall '12 term at Columbia College.

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Chapter_5_answers_to_review_questions - Review Questions...

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