审计的合法义务（PPT40页）

,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,2003,Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley,5 -,39,来自,中国最大的资料库下载,Legal Liability,Chapter 5,$2,Billion paid in S&L Lawsuits,Ernst & Young1992$400 million,Deloitte & Touche1994 $312 million,KPMG1994 $187 million,Arthur Andersen1993 $82 million,Lawsuits Against Auditors,Expectation gap on detection of fraud,Auditor sued in civil court,Breach of contract,Tort actions for negligence,Criminal Charges,Changed Legal Environment,Audit professionals have a responsibility under,common law to fulfill implied or expressed,contracts with clients.,They are liable to their clients for negligence,and/or breach of contract should they fail to,provide the services or not exercise due care,in their performance.,Business Failure, AuditFailure, and Audit Risk,Business,Failure,Audit,Failure,Audit,Risk,Business Failure, AuditFailure, and Audit Risk,Business failure,It occurs when a business is unable to,repay its lenders or meet the,expectations of its investors because,of economic or business conditions.,Business Failure, AuditFailure, and Audit Risk,Audit failure,It occurs when the auditor issues an,erroneous audit opinion as the result,of an underlying failure to comply,with the requirements of generally,accepted auditing standards (GAAS).,Business Failure, AuditFailure, and Audit Risk,Audit risk,It represents the risk that the auditor will,conclude that the financial statements,are fairly stated and an unqualified,opinion can be issued when, in fact,they are materially misstated.,Lack of,privileged,communication,Liability for,the acts,of others,Prudent,person,concept,Legal ConceptsAffecting Liability,Federal,securities laws,Third party,Client,Major Sources ofAuditors Legal Liability,Criminal,liability,Liability to Clients,The most common,source of lawsuits,against CPAs,is from clients,.,Legal Terms AffectingCPAs Liability,Terms related to contract law,Breach of,contract,Third party,beneficiary,Negligence,To be held liable, the auditors work must be shown as negligent.,Negligence (ordinary) is the lack of reasonable care.,What would a prudent auditor do in the same circumstances.,Following GAAS is not always enough reasonable care,Gross Negligence is the lack of minimum care.,Constructive fraud,Fraud - an intentional act to deceive.,Relationship to Sue for Ordinary Negligence,Privity- party to a contract,Must have privity to sue for breach of contract,Contract between auditor and client,Third Party Beneficiary (standing),Investors,Creditors,Standing depends on state common law.,Third Party Beneficiary - Standing,Limited exposure several states,Only liable if the third party was specifically known to the auditor and that the third party would be relying on the F/S,Restatement of Torts majority of states,Liable to foreseen third party users,Reasonably Foreseeable Users Wisconsin and Mississippi,Almost unlimited liability to any possible users of the F/S.,Liability and Standing,Gross negligence and fraud are a basis for liability in tort regardless of privity or standing,Ordinary negligence requires a privity or third party beneficiary relationship,Legal Terms AffectingCPAs Liability,Other terms,Common,law,Statutory,law,Joint and,several,liability,Separate and,proportionate,liability,Auditors Liability,Joint and several liability legal - Deep Pockets,many state laws allow third party persons to recover damages from the person with the deepest pockets,Proportionate liability - shared responsibility of the damages based on fault,Private Litigation Reform Act 1995,Federal lawsuits under SEC1934 Act,Some states have similar acts,Uses proportionate liability,Responsibility divided among parties,If some of the defendants are insolvent, may increase solvent defendants share by 50% of what they owe.,Joint and severally liable to small investor plaintiffs (under $200,000 and lost 10% of net worth),Knowingly committing a SEC violation can make defendant joint and severally liable,Securities Litigation Uniform Standards Act 1998,Lawyers wanted to under state law,Take advantage of joint and several liability,Easier to hold accountants liable for ordinary negligence,This act requires class action lawsuits of 50 or more parties to be filed under federal courts,Burden of Proof on Plaintiff,Show a damage or loss,Necessary privity or third party beneficiary relationship,F/S are misleading,Relied on F/S,F/S were direct cause of loss,Accountant was negligent or worse,Defenses for Accountant,No standing or privity,F/S not misleading,Audit was in accordance with GAAS performed with due care,Plaintiff did not rely on F/S,Loss caused by something else,Contributory negligence - plaintiff contributed to loss,Plaintiff did not suffer a real loss,Foreign Corrupt Practices Act of 1977,Requires a company to keep reasonable records to allow fair presentation of F/S.,Requires a company to devise a system of internal controls,Prohibits bribes to foreign officials,Administered by the SEC for 1 & 2 above,Statutory Law Liability,Foreign Corrupt Practices Act,SEC acts of 33 and 34,Violations of internal revenue code,SEC,SEC 33 - prohibits fraudulent acts related to initial offerings of stock to the public.,SEC 34 - prohibits fraudulent acts related to subsequent trading of stocks.,Gave power to establish accounting rules,Relies on accounting profession to set standards,Securitities Act 1933,Cover public offerings of securities,Requires filing of registration statement,Regulation S-X requires annual audited F/S and interim unaudited F/S,Regulation S-K requires disclosures and other supplemental information,Exchange Act 1934,Regulates Trading of Securities,Companies with $10 Million in Assets or more than 500 stockholders required to register,Requires the following reports,Form 10K Annual Report,Form 10Q Quarterly Report,Form 8K Special Event Report,EDGAR electronic data gathering, analysis and retrieval system,Liability under 1933 Act,Section 11 allows all purchasers to sue,Accountants are considered experts on F/S information on the prospectus,Accountants have additional burden as expert,Shifts burden of proof to accountant,Accountants are given safe harbor for interim information on forecasts,Liability under 1933 Act Cont.,Statute of Limitations,Within 1 year of discovery of misstatement,Or within 3 years of offering,Due Diligence Defense,Causation Defense,Section 17 Fraud unlawful under act,Section 24 set criminal liability for filing misleading F/S; fines and prison,Liability Under 1934 Act,Rule 10b-5 Antifraud,Unlawful to defraud buyer/seller securities publicly traded on a national market,Must prove scienter (intent to deceive),Section 18 Civil Liability,Persons making false or misleading statements are liable to persons that suffer a loss from relying of F/S,Auditor must prove good faith, no knowledge of misleading statements.,Section 32 Criminal Liability fines up to $10,000 and imprisonment of up to 5 years.,Liability Under the Acts,SEC 33,SEC 34,Prove damage or lossSame,Any purchaser can suepurchaser or seller can sue,Does not have to show reliance Show reliance on F/Son F/S,Not required to show F/S Show F/S caused losscaused loss,Does not have to show CPAShow CPA had was negligent scienter intent to deceive,Defense for accountant:,SEC 33,SEC 34,Due diligence Acted in,Caused by something else good faith,The accountant has the burden of proof.,Statute of limitations is 12 months or within,3 years of public offering,SEC Sanctions,The SEC has the power in certain circumstances,to sanction or suspend practitioners from doing,audits for SEC companies.,Rule 2 (e) of the SECs,Rules of Practice,says:,SEC Sanctions,The commission may deny, the privilege of,appearing or practicing before it in any way to,any person who is found by the commission,(1) not to possess the requisite qualifications to,represent others, or (2) to be lacking in character,or integrity or to have engaged in unethical or,improper professional conduct,.,Racketeer Influenced andCorrupt Organization Act,This act allows an injured party to seek treble,(triple) damages and recovery of legal fees,in cases where it can be demonstrated,that the defendant was engaged in a,“pattern of racketeering activity.”,Criminal Liability,CPAs can be held liable under,criminal liability for accountants.,CPAs can be found guilty for criminal,action under both federal and state laws.,Protecting Individual CPAsfrom Legal Liability Example,Deal only with clients possessing integrity,Hire qualified personnel,Follow the standards of the profession,Maintain independence,Protecting Individual CPAsfrom Legal Liability Example,Understand the clients business,Perform quality audits,Document the work properly,Obtain an engagement and a representation letter,Maintain confidential relations,Protecting Individual CPAsfrom Legal Liability Example,Carry adequate insurance,Seek legal counsel,Choose a form of organization with limited liability,Exercise professional skepticism,End of Chapter 5,