Table1 summarizes key court cases that have established which class or party may sue the CPA and the
level of negligence on the part of the CPA. These cases set a precedent for future litigation.
Table 1 Summary of Precedent Setting Court Cases
Next, there are two areas of law that apply to auditor’s legal liability.
Common law is derived from judicial decisions which establish a precedent for the future. Common law
covers both contracts and civil matters(tort).
In order for contract law to apply, the plaintiff must have privity or connection to the contract. Third parties
do not outwardly have privity. These individuals or classes file suit under civil laws.
Statutory law are laws created by governments. The following are all statutory
●
Foreign Corrupt Practices Act - bribery of foreign officials by Unites States companies.
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Sarbanes Oxley - covers corporate accountability and governance
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Securities Act of 1933 - covers initial registration of a security for public offering
●
Securities Exchange Act of 1934 - covers trading of securities and established requirements for
filing reports with the SEC as part of the oversight process of securities.
Now, Who can sue the auditor?
1.
The client – under contract law
2.
Third parties
●
Primary beneficiaries – auditor knows the name of beneficiary receiving the audit report. A
bank.
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Foreseen parties – third parties that could be reasonably expected rely on the audit report.
- Future creditors and lenders name unknown.
●
Foreseeable – All third parties in this class typically rely on audited financial statements.
Investors, market analysts report
