Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 4, Problem 8RQ
To determine
Identify the two factors that the court stated must be proved for auditors to be held liable for ordinary negligence to a third party.
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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
Has the accounting profession created a situation in which auditors’ ethical behavior is impaired by their professional obligations? How does the profession’s view of such obligations relate to how courts tend to view the legal liability of auditors?
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?
Chapter 4 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 8RQCh. 4 - Prob. 9RQCh. 4 - Prob. 10RQ
Ch. 4 - Prob. 11RQCh. 4 - Prob. 12RQCh. 4 - Prob. 13RQCh. 4 - Prob. 14RQCh. 4 - Prob. 15RQCh. 4 - Prob. 16RQCh. 4 - Prob. 17RQCh. 4 - Prob. 18RQCh. 4 - Prob. 19RQCh. 4 - Prob. 20QRACh. 4 - Prob. 21QRACh. 4 - Prob. 22QRACh. 4 - Prob. 23QRACh. 4 - Prob. 24QRACh. 4 - Prob. 25QRACh. 4 - Prob. 26QRACh. 4 - Gordon Moore, CPAs, were the auditors of Fox ...Ch. 4 - Prob. 28AOQCh. 4 - Prob. 28BOQCh. 4 - Prob. 28COQCh. 4 - Prob. 28DOQCh. 4 - Prob. 28EOQCh. 4 - Prob. 28FOQCh. 4 - Prob. 28GOQCh. 4 - Prob. 28HOQCh. 4 - Prob. 28IOQCh. 4 - Prob. 28JOQCh. 4 - Prob. 28KOQCh. 4 - Prob. 28LOQCh. 4 - Prob. 29OQCh. 4 - Prob. 30OQCh. 4 - Match the important cases listed below with the...Ch. 4 - Prob. 32OQCh. 4 - For each definition (or portion of a definition)...Ch. 4 - Prob. 34PCh. 4 - Prob. 35PCh. 4 - Prob. 36PCh. 4 - Charles Worthington, the founding and senior...Ch. 4 - Prob. 38PCh. 4 - Prob. 39PCh. 4 - Prob. 40PCh. 4 - Prob. 41ITCCh. 4 - Prob. 42RDC
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Similar questions
- What elements does a plaintiff have to prove to be successful in a case against a negligent auditor?arrow_forwardIn comparison to the burden of proof required of plaintiffs in civil lawsuits against independent auditors under common law, section 10(b) of the Securities Exchange Act of 1934a. Is the same regarding plaintiffs’ need to prove damages or losses.b. Is the same regarding plaintiffs’ need to establish privity or a beneficiary relationshipwith auditors.c. Does not require that plaintiffs prove their reliance on materially misstated financialstatements.d. Does not require that plaintiffs prove that relying on the materially misstated financialstatements caused their losses.arrow_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
- What types of actions may an auditor be liable to a client under common law? Why would the clients prefer to sue the auditor for tort action rather than a breach of contract?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_forwardUnder the Ultramares rule, to which of the following parties will an accountant be liable for ordinary negligence? Parties in privity and/or Foreseen partiesarrow_forward
- 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 opinionarrow_forwardGenerally, the auditor could be legally liable under? Select one: a. contract law but not under the tort of negligence to third parties b. the tort of negligence to the client and contract law c. the tort of negligence but not contract law to the client d. contract law to third parties and to the clientarrow_forwardAn 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_forward
- The 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_forwardFor what type of actions can clients bring suit against auditors under common law? What must clientsprove prior to bringing suit in each case?arrow_forward4) Explain if, and why an accountant will be held liable to: its client, to 3rd party intended users of the financial statements and audits it prepares for its client, and to reasonably foreseeable users of the work, it prepared for its client. ∙ Be sure to identify who reasonably foreseeable users would be and why the accountant is responsible to them in the absence of privity.arrow_forward
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