Question

Legal Liabilities for CPA and auditors

1) the occurrence of events that result in losses for users of the financial statements,

(2) the investigation by plaintiff attorneys before filing, to link the user losses with allegations of material omissions or Page 342misstatements of financial statements,

(3) the legal process, which commences with the filing of the lawsuit, and (

4) the final resolution of the dispute.

The first stage comes about as a result of some loss-generating event, including client bankruptcy, fraudulent financial reporting, and the misappropriation of assets.

The term “willful” and its application in criminal securities law cases often is influenced by the context of the situation. Section 32(a) of the Securities Exchange Act of 1934 provides that any person who “willfully” violates any provision of the Act can be charged with a crime, while Section 15(b)(4) authorizes the SEC to seek civil administrative penalties against any person who “willfully” violates certain provisions of the securities laws.

he term material describes the kind of information that an average prudent investor would want to have so that he can make an intelligent, informed decision whether or not to buy the security.

Traditionally, because auditors had no duty to disclose control weaknesses or their effects on substantive audit testing in the audit report, courts deemed control irregularities immaterial for deciding auditors’ liability under Section 11 of the Securities Exchange Act of 1933. The case of Monroe v. Hughes (1991) illustrates the current law.^{62 (Links to an external site.)} In that case, the auditor found internal control irregularities, conferred with management and expanded the scope of its financial audit by performing more elaborate substantive testing.

Answer the following for discussion purposes:

1. Do you think that the provision of nonaudit services for a client with a failed audit is evidence of negligence? Explain.

Answer 1

Answer:

Negligence in auditing mean that the accounting and auditing standards are not followed  and the auditing process is not performed in due diligence and care'.

Explanation:

All other services apart from that auditing services that are delivered by an auditor to a client are mentioned to as non-audit services. In case the provision of non-audit services that are being rendered by an auditor to his client are complemented with a failed audit, this will hence be seen as a case of carelessness. Generally, the allegation is made that the auditors have permitted unsuitable accounting prescriptions in light of the fact that their individuality has been endangered, either in light of the fact that they have become too close to the company they are auditing or, all the more directly, in light of the fact that their fairness is confronted by complete dependence on income from a solitary source. The individuals who hold that view believe that the main arrangement is for auditors to be forbidden from providing any administrations other than audit, to their audit clients.

Accounting principled standards prohibits auditors to give non-audit services to audit clients if that would present a warning to independence for which no acceptable protections are available. In such conditions, the firm should either resign as auditor or refuse to supply the non-audit services. The standards and code combines cases of particular activities where no suitable defends are available. the audit board, as illustrative of the shareholders, is required to oversee the association with the auditors and keep the nature and degree of non-audit services under survey. The audit board of trustees must fulfill itself that the independence and objectivity of the auditor are not bartered. The independence of an auditor is compromised when the auditor provides non-auditing services to the client. If an auditor failed tom conduct an audit with due care and he also providing other services to his/her client. This can be translated to mean that the auditor did not perform his professional duties with due diligence and is an indication of negligence on the part of the auditor