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Auditing審計學 基于環境變化的概念Ritterch17.ppt

'Auditing審計學 基于環境變化的概念Ritterch17.ppt'
Chapter 17Professional LiabilityWhat is the public accountant’s responsibility?The responsibility of public accountants to safeguard the public's interest has increased as the number of investors has increased, as the relationship between corporate managers and stockholders has become more impersonal, and as government increasingly relies on accounting information.Discuss Auditor LiabilityAuditor liability to their clients and third party user groups is derived from the following laws:Contract law - Liability is based on breach of contract. The contract is usually between the public accounting firm and the client for performance of a professional service, such as an audit performed according to GAASCommon law - Liability concepts developed through court decisions and based on auditor negligence, gross negligence or fraudStatutory law - Liability based on state statutes or Federal securities laws. The most important of these to the auditing profession are the Securities Act of 1993 and the Securities and Exchange Act of 1934Factors leading to increased litigation against auditors:User awareness of the possibilities and rewards of litigationJoint and several liability statutes that permit a plaintiff to collect the full amount of the settlement from any defendant, even those only partially responsible for the loss (i.e. deep pockets theory)Increased audit complexity caused by computerized systems, new types of transactions and operations, more complicated accounting standards, more international businessMore demanding audit standards for detection of errors and fraudPressures to reduce audit time and improve audit efficiency Misunderstanding by users that an unqualified opinion is an insurance policy against misstatements (expectations gap)Contingent-fee-based compensation for law firms, especially in class action lawsuitsClass action lawsuits which allow law firms to combine defendants into one legal actionPunitive damagesFactors leading to increased litigation against auditors:Discuss Potential LiabilityTo understand the potential liability, the auditor must understand:Concepts of breach of contract and tortParties who may bring suitLegal precedence and statutes that may be as a standard against which auditor performance may be evaluatedAuditor defenses Discuss Causes of Legal ActionCauses of legal actionBreach of contractNegligence: failure to exercise a reasonable level of care that causes damage to anotherGross negligence: failure to exercise even a minimal level of care (reckless disregard) but without intent to harm or damage anyoneFraud: intentional concealment or misrepresentation of material facts that cause damages to those deceived (scienter)Comment on Civil Liability Auditors may be held civilly liable by clients and third parties who use audited financial statements. This civil liability is basedContract lawCommon lawStatute Define Breach of Contract Breach of Contract occurs when auditor fails to perform a contra。省略部分。 statements are included in the Registration statement (and prospectus)Because it covers the issue of new securities, the Act requires a very high standard of care. Plaintiffs need prove onlyfinancial statements were materially misleadingplaintiff suffered damagesplaintiffs do not need to prove reliance on the statements or auditor misconductAuditor defenses includeproving financial statements were not materially misstatedproving plaintiff damages were not caused by the misleading financial statementsproving auditor acted with due professional care Securities Exchange Act of 1934The Securities Act of 1934 regulates trading of securities after their initial issuance (secondary market) and the filing of periodic reports with the SEC. These reports include annual reports and 10-Ks, quarterly financial reports and 10-Qs, and 8-Ks.The 1934 Act holds auditors to a much lower standard of care than the 1933 Act. Under the 1934 Act, plaintiffs must proveExistence and amount of damagesFinancial statements were materially misleadingPlaintiff relied on the statements and as a result, suffered damages (causality)Auditor misconduct - the level of misconduct that must be proved is the subject of much debate. In Ernst & Ernst v. Hochfelder, the U.S. Supreme Court held thatCongress had intended that the plaintiff prove the auditor acted with scienterHowever, the Court reserved judgment as to whether gross negligence would be sufficient to impose liabilityIn several cases following Hochfelder, judges and juries have used a standard of "reckless conduct" to hold auditors liableSecurities Exchange Act of 1934Criminal Liability to Third PartiesBoth the 1933 and 1934 Acts provide for criminal actions against auditors - guilty persons can be fined or imprisoned for up to five years.Key cases regarding auditor criminal liabilityContinental Vending (U.S. v Simon)Equity FundingU.S. v DuncanPolicies to Help Assure Auditor IndependencePeriodic rotation of audit engagement partnerProhibit certain non-audit services for public company audit clientsRestrict other non-audit services for audit clientsFirm policies including training programs that emphasize auditor independence and requiring each auditor to sign a statement of independenceExternal quality reviews: Sarbanes/Oxley Act requires the PCAOB perform quality reviews of registered public accounting firmsInternal reviews: concurring partner reviews and interoffice reviewsApproaches to Mitigate Liability Exposure (Defensive Auditing)Defensive auditing means taking special actions to avoid lawsuits. In addition to establishing good quality controls and quality/peer reviews, firms can take other actionsUse engagement letters for all financial statement and consulting engagementsClient screeningDo not accept engagements for which the firm is not qualifiedMaintain complete and accurate audit documentation Limited liability partnershipsCarry sufficient professional liability insuranceTort reform
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變化 環境 概念 ritterch17 基于 ritterch 審計學 17 auditing
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