Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN: 9781337619455
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: Cengage Learning
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Question
Chapter 4, Problem 14RQSC
a.
To determine
Introduction: Auditor is appointed by the company in order to get their financial statements checked whether they are authentic or reliable for further usage by the shareholders and other users.
Thelikelihood that the plaintiff would win if the financial institution will file a suit against the auditor under common law.
b.
To determine
Introduction: Auditor is appointed by the company in order to get their financial statements checked whether they are authentic or reliable for further usage by the shareholders and other users.
To define: The likelihood for the given situation that the plaintiff would win or not if the auditor was sued and found guilty of negligence.
c.
To determine
Introduction: Auditor is appointed by the company in order to get their financial statements checked whether they are authentic or reliable for further usage by the shareholders and other users.
To define: The likelihood for the given situation that the plaintiff would win or not if the auditor was sued and found guilty of negligence.
d.
To determine
Introduction: Auditor is appointed by the company in order to get their financial statements checked whether they are authentic or reliable for further usage by the shareholders and other users.
To define: The likelihood for the given situation that the plaintiff would win or not if the auditor was sued and found guilty of negligence.
e.
To determine
Introduction: Auditor is appointed by the company in order to get their financial statements checked whether they are authentic or reliable for further usage by the shareholders and other users.
To define: The likelihood for the given situation that the plaintiff would win or not if the auditor was sued and found guilty of negligence.
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Students have asked these similar questions
Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements?
A. The CPA is liable only to third parties in privity of contract with the CPA
B. The CPA is liable only to known users of the financial statements
C. The CPA probably is liable to any person who suffered a loss as a result of the fraud
D. The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinion
What does a third-party user of financial statements have to prove under common law in a suit against an auditor for the auditor's negligence? Explain each item with an example
An auditor was sued and found guilty of negligence. For each of the following situations, indicate the likelihood the plaintiff would win if the plaintiff is:
An investor suing under the 1934 Securities Exchange Act.
An investor suing under the 1933 Securities Act.
Chapter 4 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
Ch. 4 - Prob. 1CYBKCh. 4 - Prob. 2CYBKCh. 4 - Prob. 3CYBKCh. 4 - Prob. 4CYBKCh. 4 - Prob. 5CYBKCh. 4 - Prob. 6CYBKCh. 4 - Prob. 7CYBKCh. 4 - Prob. 8CYBKCh. 4 - Prob. 9CYBKCh. 4 - Prob. 10CYBK
Ch. 4 - Prob. 11CYBKCh. 4 - Prob. 12CYBKCh. 4 - Prob. 1RQSCCh. 4 - Prob. 2RQSCCh. 4 - Prob. 3RQSCCh. 4 - Prob. 4RQSCCh. 4 - Prob. 5RQSCCh. 4 - Prob. 6RQSCCh. 4 - Refer to the Focus on Fraud feature “Moss Adams...Ch. 4 - Prob. 8RQSCCh. 4 - Prob. 9RQSCCh. 4 - Prob. 10RQSCCh. 4 - Prob. 11RQSCCh. 4 - Prob. 12RQSCCh. 4 - Prob. 13RQSCCh. 4 - Prob. 14RQSCCh. 4 - Prob. 15RQSCCh. 4 - Prob. 16RQSCCh. 4 - Prob. 17RQSCCh. 4 - Prob. 18RQSCCh. 4 - Prob. 19RQSCCh. 4 - Prob. 20RQSCCh. 4 - Prob. 21RQSCCh. 4 - Able Corporation decided to make a public offering...Ch. 4 - KPMG (LO 1, 2, 3) KPMG LLP served as the external...Ch. 4 - ToshIba, EY (LO 1, 2, 3) In 2015, the business...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- What does a third-party user of financial statements have to prove under common law in a suit against an auditor for the auditor's negligence?arrow_forwardAnalyze each of the following situations below and provide your assessment of the potential resolution of each scenario, including potential liability for the auditor or audit firm involved. Yasmeen CPA is a defendant in a lawsuit alleging that she should be held liable for gross negligence for a fraud involving the valuation of securities included in the financial statements of one of his clients. Yasmeen was uncertain how to establish a correct valuation for the securities and decided to rely on the price estimation supplied by management. A lawsuit has been filed against Elena CPA, charging here with constructive fraud in the audit of Broughton Company’s financial statements. Elena has examined all the audit documentation in his files and reviewed all relevant auditing standards. She is convinced that his audit fully complies with standards of the profession but is uncertain what he should use as his primary defense tactic. Canon Film filed for a bankruptcy in January 2012. A…arrow_forwardIn a common law action against an accountant, lack of privity is a viable defense ifthe plaintiff(1) is the client’s creditor who sues the accountant for negligence.(2) can prove the presence of gross negligence that amounts to a reckless disregardfor the truth.(3) is the accountant’s client.(4) bases the action upon fraud.arrow_forward
- Individuals who believe they relied on misstated financial statements to make a decision andhave suffered losses as a result will issue an action known as aa. Breach of contract.b. Tort.c. Securities litigation.d. Constructive fraud.arrow_forwardA group of investors sued Anderson, Olds, and Watershed, CPAs (AOW) for alleged damages suffered when the entity in which they held common stock went bankrupt. To avoidliability under the common law, AOW must demonstrate which of the following?a. The investors actually suffered a loss.b. The investors relied on the financial statements audited by AOW.c. The investors’ loss was a direct result of their reliance on the audited financial statements.d. The audit was conducted in accordance with generally accepted auditing standards andwith due professional care.arrow_forwardThe following pertains to auditor legal liability standards under the PSLRA:a. The Reform Act requires that, in any private securities fraud action in which the plaintiff is alleging a misleading statement or omission on the part of the defendant, “the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.”90Do you believe this standard better protects auditors from legal liability than the standards which existed before the PSLRA? Explain.b. Do you believe the change in standards for auditors’ liability under the PSLRA from joint-and-several to proportional liability was a good thing? Explain.arrow_forward
- LO 3 An auditor was sued and found guilty of negligence. For each of the following situations, indicate the likelihood the plaintiff would win if the plaintiff is: A financial institution that the auditor knew was the primary beneficiary of the audit, suing under common law. A stockholder suing under common law. A financial institution that was unknown to the auditor loaned money to the client based on the audit financial statements, but the auditor knew only that the client would use the statements to obtain a loan from some financial institution. The plaintiff is suing under common law. An investor suing under the 1934 Securities Exchange Act. An investor suing under the 1933 Securities Act.arrow_forwardaction which can be taken by SAICA against the external auditor if he/she applied negligence in auditing the financial statements of the companyarrow_forwardA number of cases have considered the auditor’s liability in relation to persons other than the immediate client. Even so, the AWA case established that: Select one: a. Duty of care and skill means following the accounting standards b.auditors have a contractual duty to oversee and review the work of inexperienced audit staff c.Auditors are only liable for the proportion of damages attributable to their actions d.Auditors have a duty of care only to the shareholders.arrow_forward
- An investor or creditor believes that they have suffered harm due to the unexpected the bankruptcy of a large corporation: Required: Can that investor or creditor sue the auditor of the large corporation under contract law? Explain. If the investor or creditor chooses to sue the auditor of the large corporation under tort law, what must they prove before their claim can succeed? How can the auditor contest a claim of negligence?arrow_forwardWhat kind of actions might customers pursue against auditors under the common law doctrine of restitution? In each situation, what evidence do clients need to provide before filing a lawsuit?arrow_forwardWhen investors sue auditors for damages under section 11 of the Securities Act of 1933,they must allege and provea. Scienter on the part of auditors.b. The audited financial statements contained a material misstatement.c. They relied on the materially misstated financial statements.d. Their reliance on the materially misstated financial statements was the direct cause oftheir loss.arrow_forward
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