Audit

Explain the impact of key court cases on the public story profession. 4. expose auditor liability, discuss auditor responsibilities, locate possible auditor defences, and discuss possible remedies and sanctions available under some(prenominal) common law and statutory law. 5. Identify professional requirements that help discipline audit quality and minimise auditor video to liability suits. 6. Describe defensive actions that audit firms can take to limit the effects of judicial proceeding on audit firms and individual auditors. 7.Apply the decision analysis and ethical decision-making frameworks to issues that could endpoint in litigation. Teaching Suggestions Even though most audits are decent performed, a significant ppercentage of the gross revenue of public accounting firms is spend on professional liability insurance and litigation cost. Litigation costs and settlements caused Andersen, once the worlds largest public accounting firm, to declare bankruptcy. In todays di sputatious environment, it is extremely important that auditors use ascribable professional c everywhere to minimise such costs.Even when due professional care is exercised, the government, iinvestors, and clients may still sue auditors. This chapter discusses the legal environment and concepts related to audits, and approaches to minimising exposure to liability. It also looks at several key court cases and their impact on the profession. The challenge when teaching this material is to im variance to sstudents a genuine misgiving of the legal environment in which auditors operate without overwhelming them with material to swindle that they are unlikely to remember.This challenge is heightened by the need to stress the magnificence of liability avoidance without leaving the impression that it is the major focus of the audit process. Begin by re glanceing pertinent legal terminology. Then discuss the litigious climate for auditors and how that climate has changed over the past few decades. Reasons for the increase in litigation, often settled out of court include greed on the part of unscrupulous financial report users and preparers, ignorance and neglect on the part of auditors, and a volatile furrow climate characterised by numerous business failures.Public distrust adds to the problem. Stress the impact of litigation on the profession (1) goodly resources expended to litigate, (2) some distrust and loss of credibility in the public accounting profession which is heightened by negative media coverage, (3) proliferation of new auditing standards, and (4) pressure from stock exchanges which has resulted in the establishment of audit committees and comfort letters to underwriters. It is helpful to go over the concept of due care found in tort law.Ask sstudents how they view their liability if, as new employees, they are asked to complete a depute that they do not feel qualified to do. Explain the imprecision of the tenable man concept and the problems that arise when ordinary citizens sit on juries involving good matters with which they are unfamiliar. The text outline can be followed when discussing the specific legal concepts that affect the auditing profession including the auditors liability to clients and third parties.