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14 Cards in this Set
- Front
- Back
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business failure |
revenue no longer covers expenses, can't pay obligations |
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audit failure |
auditor issues incorrect audit opinion because it didn't comply with requirements of auditing standards. Failure to follow GAAS - private, or PCAOB - public. Doesn't matter if F/S correct, if fail to do something required, then audit failure |
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audit risk |
risk that F/S contain material misstatement, even though compliance w/ GAAS. |
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prudent person concept |
- employment of skill w/ reasonable care, diligence - if one offers service, must have req. skills - resp. for good faith, integrity, but not infallibility - liable for negligence, bad faith, dishonest, but not errors of judgement - akin to due professional care |
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ordinary negligence gross negligence constructive fraud fraud |
1. absence of reasonable care 2. lack of even slight care - reckless behavior 3. extreme or unusual negligence - recklessness, no intent to deceive 4. misstatement made w/ knowledge and intent to deceive |
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3rd party beneficiary |
known to the contract party and intended to have rights/benefits |
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auditor's defenses against law suit |
lack of duty to perform non-negligent performance - followed standards contributory negligence- client's actions resulted in loss or interfered absence of causal connection |
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lack of privilege |
under common law, CPAs don't have right to withhold info from courts on grounds of client privilege |
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auditor's legal liabilities |
1. to clients - don't finish or don't find fraud 2. to 3rd parties under common law- bank sues 3. civil under fed. securities laws- group stockholders sues 4. criminal - fed. prosecutes |
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privity of contract |
parties who have a relationship that is established by a contract are said to have privity of contract |
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partners may be held liable for work of others on audit |
employees |
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securities act 1933 |
-original purchasers of IPO securities can recover losses -do not have to prove relied on F/S or that auditor negligent, only that F/S have material misstatement or omission -auditor has burden of proof that audit was adequate, loss caused by other factors - only common or statutory law burden on defendant
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securities exchange act 1934 |
-rule 10b-5 -antifraud provisions -prohibit fraudulent activities in purchase/sale securities -CPAs liable if intentionally or recklessly misrepresent info intended for 3rd party use -scienter, intent & know. to deceive, must be present |
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criminal liability |
SOX 2002, felony to destroy/create docs to impede or obstruct a federal investigation |
