Auditing SP 2008 CH 5 Outline Legal Liability

Auditing and Assurance Services (12th Edition)

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CH 5 LEGAL LIABILITY - CHANGING ENVIRONMENT – ALL PROFESSIONALS FACE LIABILITY SUITS. - - BUSINESS FAILURE – INSOLVENT & BANKRUPTCY - AUDIT FAILURE – ISSUES AN INCORRECT REPORT DUE TO FAILURE TO COMPLY WITH GAAS - AUDIT RISK – ASSOCIATED WITH THE ISSUANCE OF AN UNQUALIFIED OPINION WHEN THEY ARE MATERIALLY MISSTATED. FRAUD CAN BE VERY DIFFICULT TO FIND. - THE STD OF DUE CARE TO WHICH THE AUDITOR IS HELD IS OFTEN CALLED THE PRUDENT PERSON CONCEPT. ( AUDITORS ARE NOT GUARANTORS OF F/S). PG 114 1. EMPLOYMENT OF SKILL WITH REASONABLE CARE & DILIGENCE. 2. IF ONE OFFERS HIS SERVICE, HE MUST HAVE SKILL. 3. HE UNDERTAKES FOR GOOD FAITH AND INTEGRITY, BUT NOT FOR INFALLIBILITY. 4. IS RESPONSIBLE FOR NEGLIGENCE, BAD FAITH OF DISHONESTY, BUT NOT ERRORS OF JUDGEMENT. - SOURCES OF LIABILITY CLIENTS UNDER COMMON LAW (UNWRITTEN LAW) Breach of contract Due care is best defense
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Unformatted text preview: See defenses on page 118 SEE LEGAL TERMS ON PAGE 115 CLIENTS UNDER TORT LAW Ordinary negligence / Gross negligence / Fraud Due care OR contributory negligence is best defense THIRD PARTIES UNDER COMMON LAW Primary Beneficiaries – Ultramares v. Touche (PG 119) Primary Beneficiary can sue for ordinary negligence. ALSO FORESEEABLE BENEFICIARIES. LIABILITY UNDER SECURITIES LAW SECURITIES ACT OF 1933 – IPO’S Claim must allege material false or misleading financials Does not have to show reliance Does not have to prove negligence SECURITIES ACT OF 1934 – CENTERS ON AUDITED F/S CONTAINED IN ANNUAL REPORTS OR SUBMITTED TO THE SEC AS PART OF FORM 10-K REPORTS. SECTIONS 10 & 10b-5 ARE CALLED THE ANTIFRAUD PROVISIONS OF THE 34 ACT. SARBANES-OXLEY ACT OF 2002 MINIMIZING THE RISK OF LITIGATION...
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