LegalLiability(英文版)(40页).ppt

Legal Liability Chapter 5 $2 Billion paid in SL Lawsuits Ernst Young 1992 $400 million Deloitte Touche 1994 $312 million KPMG 1994 $187 million Arthur Andersen 1993 $82 million Lawsuits Against Auditors Expectation gap on detection of fraud Auditor sued in civil court Breach of contract Tort actions for negligence Criminal Charges Changed Legal Environment Business Failure, AuditFailure, and Audit Risk Business Failure, AuditFailure, and Audit Risk Business Failure, AuditFailure, and Audit Risk Business Failure, AuditFailure, and Audit Risk Legal ConceptsAffecting Liability Major Sources ofAuditor’s Legal Liability Liability to Clients Legal Terms AffectingCPAs’ Liability Negligence To be held liable, the auditor’s work must be shown as negligent. ?Negligence (ordinary) is the lack of reasonable care. What would a prudent auditor do in the same circumstances. Following GAAS is not always enough reasonable care ?Gross Negligence is the lack of minimum care. Constructive fraud ?Fraud - an intentional act to deceive. Relationship to Sue for Ordinary Negligence Privity- party to a contract Must have privity to sue for breach of contract Contract between auditor and client Third Party Beneficiary (standing) Investors Creditors Standing depends on state common law. Third Party Beneficiary - Standing Limited exposure – several states Only liable if the third party was specifically known to the auditor and that the third party would be relying on the F/S Restatement of Torts – majority of states Liable to foreseen third party users Reasonably Foreseeable Users – Wisconsin and Mississippi Almost unlimited liability to any possible users of the F/S. ?Liability and Standing Gross negligence and fraud are a basis for liability in tort regardless of privity or standing Ordinary negligence requires a privity or third party beneficiary relationship Legal Terms AffectingCPAs’ Liability Auditor’s Liability Joint and several liability legal - Deep Pockets