Chapter 4 Audit - Legal Liabilities of CPA's
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20 Terms
Common Law Liability Arises due to
Breach of contract, negligence, and fraud
Satutory Liability Arises due to
a governmental unit passing laws and regulations
Fraud
Misrepresentation by a person of a material fact, known to be untrue or made with indifference, with the intention of deceiving the other party
Constructive Fraud
does not involve a misrepresentation with intent to deceive
Statutory liability
Liability under both the federal securities laws and state securities laws
What else is Statutory Liability called?
Blue Sky Laws
The Securities Act of 1933 applies to
initial stock offerings
The Securities Act of 1933
liability for the audit work relating to financial statements used to register securities for sale
Securities Exchange Act of 1934
imposes liability for the work on financial statements ongoing
How are CPA’s not liable/complete defense
If they can prove they preformed their services with due professional care
What elements must a client prove to establish CPA liability
Duty, Breach of duty, Losses, and Causation
Auditors duty is defined by
AICPA generally accepted or PCAOB auditing standards, EL, and legal considerations
Losses (both financial statement and tax)
Losses from embezzlement or tax penalties
Causation defense
audit was preformed with due professional care and there was no negligence in performance of audit contract and duties
Contributory Negligence
Negligence on part of the plaintiff that contributed to them incurring a loss
Comparative Negligence
Used to allocate damaged between negligent parties
Proportionate Liability
Allocation of comparative negligence damages
Joint and several liability
Holds defendants jointly responsible for losses attributed to the class as well as any share of losses that cannot be collected from those unable to pay their share
Joint and several liability
Defendants are liable for pro rata share of damages awarded, but can also be held liable for damages of defendants who are unable to pay their share of damages.