Business Accounting: Case Analysis Of Cardozo & Co.

Great Essays
The paramount onus of an auditing professional is conveying reliable information to clients and the public so that they may make imperative, intellectual decisions. For this obligation to be fulfilled, a quality audit must be performed in accordance with generally accepted auditing standards (GAAS). Executing a quality audit necessitates an auditor reasonably assures financial statements are presented fairly in accordance with generally accepted accounting principles (GAAP) and not materially misstated, whether due to errors or fraud. Furthermore, executing a quality audit obliges an auditor to utilize professional skepticism by exercising proficient judgment and proves competency in accounting principles and professional auditing standards. …show more content…
Comparably, displeased investors who purchased Cardozo & Co.’s shares on the date of the IPO, as well as those who purchased shares in anticipation of the propositioned merger, have filed a private lawsuit against me. To conclude this chronicle of calamitous events, I have been made aware that Cardozo & Co. is under investigation by the United States Department of Justice (DOJ), the Internal Revenue Service (IRS), the Securities Exchange Commission (SEC), the Florida Attorney General, and the Florida Department of Revenue. I must now, as a result of my actions, ask myself: Am I, in any manner, liable under common law? Am I, in any manner, liable under statutory law? May I declare an accountant-client privilege in any probable litigation scenario?
When sued, within the common law division, an auditing professional may be liable to two classes of persons: clients and third parties. Beginning with the former class, Mallor, Barnes, Bowers, and Langvardt— authors of the textbook entitled Business Law: The Ethical, Global, and E-commerce Environment— avow that auditing professionals have three sources of civil liabilities to their clients: contract, tort, and trust (Mallor et al. 1189). In regards to the final source aforementioned, I am not liable for breach of trust for I preserved the confidentiality of my client’s
…show more content…
If the auditor fails to convey reliable information to the client by not executing a quality audit of the company’s financial statements in accordance with GAAS, that authors argue that he/she is ordinarily liable for compensatory damages and consequential damages, such as the costs the client will incur to hire an alternate auditor to complete the work (Mallor et al. 1189). The numerous inexactitudes present within Cardozo & Co.’s financial statements, which I failed to detect, serve as a testament to the fact that I did not perform a quality audit in accordance with GAAS. I failed to reasonably assure my client that the company’s financial statements were presented fairly in accordance with GAAP and not materially misstated. I failed to uncover the president’s embezzlement scheme and perform my due diligence in regards to the “irregular” entries. Furthermore, I failed to fulfill my implied duty to utilize professional skepticism and to be competent in accounting principles and professional auditing standards. Therefore, I have a contractual liability to my client for breach of

Related Documents

  • Improved Essays

    Independence In Auditing

    • 1290 Words
    • 6 Pages

    This falls in line with the advocacy threat which will make the auditing firm not independent as it is in their self-interest as well that the client does well so the client keeps their consulting portion as well. This was a significant portion of frauds such as Enron which later caused regulation with the Sarbanes Oxley Act in 2002. Finally, auditors cannot provide management functions1. This would not allow the auditor to be objective and there will be a bias towards the client in this…

    • 1290 Words
    • 6 Pages
    Improved Essays
  • Superior Essays

    The mechanism of noticing the fraud detection hotline is absent in the Kmart. Accounting issues and impacts The actual scandal of the Kmart can be classified as an issue of recognizing the allowances prematurely on the basis of false information provided by the company’s accounting department. The number of vendor representatives co-signed the false and the misleading accounting documents and provided the false or misleading third party confirmations to Kmart’s independent auditor. As a whole, the inflated revenues of the company increased the stock value of the company shares in the market falsely. The internal control mechanism of Kmart did not evaluate the possible scandal in the financial statement of the company neither did it flag the issue.…

    • 1343 Words
    • 6 Pages
    Superior Essays
  • Superior Essays

    Professional Competence and Due Care: An accountant l has an obligation to have proficient skills and information to provide competent services to clients. He should be committed and dedicated and must act as per the standards applicable when providing his services. Due care requires accountants to observe all accounting standards and to have competence, consistency and a comprehensive understanding of financial information. 4. Confidentiality: An accountant should not disclose confidential information of his clients to third parties without a professional or legal reason to take such step.…

    • 970 Words
    • 4 Pages
    Superior Essays
  • Improved Essays

    Which is why Ocwen never gave us a straight answer as to who holds this responsibility or who holds our note. FCRA Our claim arising under the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681s was not added to the amended complaint because as Pro Se litigants, we learn as we go. We learned of the violations after we amended our complaint. Our ignorance should not give Ocwen 's illegal business practices a pass.…

    • 1647 Words
    • 7 Pages
    Improved Essays
  • Improved Essays

    The investor would have to prove that they relied on the information but they don’t have to prove that it was the defendants fault. The defense for this would be good faith (acting without scienter)that I had no knowledge that the statement was false or misleading. I had no idea about the overstating of the net sales and net profits or the siphoning of profits by the company President, but he did notice suspicious entries he believed to be bribes that he didn’t investigate further. (Mallor, 2010, p. 1202) b. Reginald Varghese would not be found liable under Rule 10b-5 of the Securities Exchange Act of 1934 act. Rule 10b-5 bars any person from making a misstatement or omission of material fact in relation to the purchase or sale of any security.…

    • 1799 Words
    • 8 Pages
    Improved Essays
  • Improved Essays

    They were created to protect the companies, investors, and stakeholders from questionable accounting practices. It also helps to hold the companies responsible for their financial reporting activities. It maintains consistency in reporting financial information and to reduce the risk of fraud and error. If GAAP didn’t exist, companies couldn’t provide accurate or consistent information to the investors, creditors or stakeholders. FASB has helped to protect the stakeholder’s interest by creating the standards for the financial reporting.…

    • 1619 Words
    • 7 Pages
    Improved Essays
  • Improved Essays

    Mr. Lee violated Section 2635.101(a) of the Standards of Ethical Conduct for Employees of the Executive Branch as he pled guilty to a crime where the public and the Postal Service had lost trust in him. The Postal Service has the right to discipline employees if there is a nexus to the off duty conduct. Question 6, Page 628: No, the arbitrator should not use the Union’s submission of evidence of continued employment for Ms. Edwards. Mr. Lee and Ms. Edwards were not similarly situated employees because Ms. Edwards was not a bargaining unit employee, did not plead guilty, and was not found guilty. Employees not covered by a bargaining unit, do not have the same union protections or grievance rights as bargaining…

    • 799 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Having a set of rules and policies that doesn’t follow GAAP would then question the shareholders to rely on such a big company like Halliburton. Halliburton would simply adopt a revenue recognition policy in which would permit the system to commit overstatement of revenue by recognizing certain amount of revenue before it had occurred and been truly earned. Another inadequacy in the corporate system would be the fact of having a weak whistle blowing policy. Many of its employees were in fear of committing the whistle blow, since their confidentiality wasn’t well protected and there were chances of retaliation from Halliburton. The last inadequacy I would describe would be the fact that there should have been a better working environment around Halliburton.…

    • 908 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    In another meanings of derivative actions, according to Sulaiman and Bidin (2008), states that derivative actions is brought by a member, but is based on legal action which the company has. For an example, a breach of duty owed to the company. Besides that, according to Sulaiman and Bidin (2008) there is an elements of fraud on the minority which the applicant cannot rely on the exception to the proper plaintiff rule to bring a derivative action on behalf of the company unless if the wrongdoer who is in control of the company has obtained benefit at the company’s expense and the wrongdoer has majority votes to prevent the company from suing. In the related cases is Cooks v Deeks (1916), the majority shareholder has diverted the company’s business to another business excluding the minority shareholder. On the facts of cases, the minority shareholder has sued them on the profit that they have made.…

    • 911 Words
    • 4 Pages
    Improved Essays
  • Great Essays

    Barings Bank Case Study

    • 1619 Words
    • 7 Pages

    Barings top management less familiar business proprietary problem (transaction for his own interests). If Barings Auditors and top management understands the business of trading, they would know that it is impossible for Leeson obtained a profit of which he reported, if not taking greater risk anyway. And of course top management and Auditors questioning where the origin of the spider. Lack of knowledge about the trading Barings business is indeed justified in considering the most senior Barings managers have a background of merchant banking. The members of the Assetand Liability Committee (ALCO), which monitors market risk, stated it's a matter of quantity of positions taken Leeson, but later felt comfortable with the thought that eksposure Barings over market risk is relatively small because Leeson over the hedgethe position.…

    • 1619 Words
    • 7 Pages
    Great Essays