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 (Irwin Accounting)
- Why is professional skepticism important when completing an audit? Please explain.arrow_forwardWhat is meant by a “colorable claim”? Do you believe auditors should be liable for investor losses even if they follow generally accepted auditing standards?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_forward
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- Explain why professional skepticism would be critical in assessing and responding to the risk of fraud.arrow_forwardIf an auditor believes that an understanding with an audit client has not been established he or she should? State what should an auditor do and explain.arrow_forwardWhat is meant by the evaluation of a client's ability to continue as a going concern? What are some situations that would require modification of the auditor's opinion related to going concern? What is the auditor's responsibility for assessing a client's ability to continue as a going concern?arrow_forward
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