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14 Cards in this Set
- Front
- Back
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Audit Failure |
Failure to follow auditing standards |
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Audit Risk |
Risk of issuing incorrect opinion |
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What factors influence the incidence of audit failures? |
Favorable: Legal liability, Peer/PCAOB review, improved audit technology, audit committees
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Ordinary negligence |
Absence of reasonable care; what would another audit do? |
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Gross negligence |
Lack of even slight care; somewhat reckless behavior |
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Constructive fraud |
Extreme negligence; no intent to deceive; recklessness |
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Ultramares Doctrine |
Ordinary negligence insufficient to establish liability to third parties lacking privity |
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Auditor's Defenses Against Client Suits |
1. Lack of Duty to Perform 2. Nonnegligent Performance 3. Contributory Negligence 4. Absence of Causal Connection |
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Lack of duty to perform |
The work required to detect the misstatement was not in the auditor's scope |
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Nonnegligent performance |
Audit was preformed in line with auditing standards |
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Contributory Negligence |
Client's own action caused of prevented CPA from identifying issue |
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Absence of Casual Connection |
No connection between audit failure and damages |
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1933 Securities Act |
Purchasers of newly issued securities -Purchasermust prove material misrepresentation or omission (Reliance not required) - Auditor must prove audit was adequate orloss was caused at least in part by other factors (thus burden of proof is onthe defendant) |
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Four main sources of legal liability |
1. Client- Common Law 2. Third Parties- Common Law 3. Federal securities acts 4. Criminal liability |
