Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 5, Problem 16.1MCQ
To determine
Identify the following element that is required to be proven by the plaintiff to hold an accountant liable for gross negligence but not for actual fraud.
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Students have asked these similar questions
In 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.
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 elements does a plaintiff have to prove to be successful in a case against a
negligent auditor?
Chapter 5 Solutions
Auditing And Assurance Services
Ch. 5 - Prob. 1RQCh. 5 - Prob. 2RQCh. 5 - Prob. 3RQCh. 5 - Prob. 4RQCh. 5 - Prob. 5RQCh. 5 - Prob. 6RQCh. 5 - Prob. 7RQCh. 5 - Prob. 8RQCh. 5 - Prob. 9RQCh. 5 - Prob. 10RQ
Ch. 5 - What potential sanctions does the SEC have against...Ch. 5 - Prob. 12RQCh. 5 - Prob. 13RQCh. 5 - Prob. 14.1MCQCh. 5 - Prob. 14.2MCQCh. 5 - Prob. 14.3MCQCh. 5 - Prob. 15.1MCQCh. 5 - Prob. 15.2MCQCh. 5 - Prob. 15.3MCQCh. 5 - Prob. 16.1MCQCh. 5 - Prob. 16.2MCQCh. 5 - Prob. 16.3MCQCh. 5 - Prob. 17DQPCh. 5 - Prob. 18DQPCh. 5 - Prob. 19DQPCh. 5 - Prob. 20DQPCh. 5 - Prob. 21DQPCh. 5 - Prob. 22DQPCh. 5 - Prob. 23DQPCh. 5 - Prob. 24DQPCh. 5 - Prob. 27DQPCh. 5 - Prob. 28C
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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? Explain each item with an examplearrow_forwardWhat 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_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_forward
- Auditors may be held liable to both their clients and third parties under common law. a. What must a client prove to recover its losses from the auditors under common law? b. In a court that adheres to the precedent set by the Ultramares v. Touche case, what must an ordinary third party prove to recover losses from the auditors under common lawarrow_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_forwardWhat 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_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_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_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
- Give an explanation of the legal foundation for suing a CPA. What defenses does the auditor have to counter such accusations? What is the relationship between these defenses and adherence to the accounting profession's ethical standards?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_forward
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