Principles of Auditing & Other Assurance Services (Irwin Accounting)
20th Edition
ISBN: 9780077729141
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Question
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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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 law
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
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 (Irwin Accounting)
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 - Prob. 33OQCh. 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
- 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?arrow_forwardWhat elements does a plaintiff have to prove to be successful in a case against a negligent auditor?arrow_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_forward
- am. 27.arrow_forwardUnder 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_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_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_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_forward
- For what type of actions can clients bring suit against auditors under common law? What must clientsprove prior to bringing suit in each case?arrow_forward2. A client has departed from GAAP for what you, the auditor, considers to be justifiable. The financial statements would have been misleading if the client had not departed from GAAP. Circumstance: Type of Opinion:arrow_forward3.An important development in the area of breach of contract by an auditor is contributory negligence.Required:Define contributory negligence. Discuss the concept of contributory negligence as it applies to auditing using the example of the AWA case.arrow_forward
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