Explain the reason for the
Explanation of Solution
The Certified Public Accountant’s liability:
The accountants have both common law and statutory law liability. Common law liability emerges through court decisions for negligence, breach of contract, and fraud. Statutory liability is developed when the governmental units enforce laws and regulations either explicitly or implicitly imposed the liability on the accountants.
The reason for the potential liability of auditors for professional malpractice exceeding physicians or other professionals:
The important reason is the area of liability based on the users of the financial statements as prepared and audited by the auditors. When there are small misstatements in the financial statements its impact results in heavy loss incurred by the users and the potential users of those financial statements. The auditor’s liability is not restricted to the parties to the contract but includes third-party users also. Malpractice suits usually turn to be a small dollar recovery suits with huge litigation cost in any profession.
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Chapter 4 Solutions
Principles Of Auditing & Other Assurance Services
- How does the prudent person concept affect the liability of the auditor?arrow_forwardAuditor’s failure to exercise sufficient care and skill in carrying out their audit might lead to legal action by those who claim to rely on the work of the auditor (Che-Ahmad et. Al., 2018). REQUIRED: Discuss THREE (3) safeguards by auditors that could help minimize the risk of legal liability.arrow_forwardWhat elements does a plaintiff have to prove to be successful in a case against a negligent auditor?arrow_forward
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- Distinguish between the legal concepts of actually foreseen third-party users and reasonably foreseeable third-party users. How does each concept establish a basis for an auditor’s legal liability to third parties?arrow_forwardExplain the threats to professional skepticism that might influence audit judgment.arrow_forward
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