Essay on Case Fred Stern & Company, Inc.

665 Words Apr 26th, 2011 3 Pages
1) It would impact the work of auditors in terms of the care they exercise in preparing the auditor’s report. The cost would be more time spent on audits and the clients would need to better prepare their own reports. The range and number of persons who could suffer loss consequent upon negligent of auditors is large and includes investors and creditors. It would benefit them greatly because the audit work should be done with better care therefore they can use the statements with more trust. I feel that the judge should have authority to decide who auditors are liable to. In this case is clear that Touche was negligent and they should have liability to all foreseen third parties.

2) In section 11 of the securities act of 1933 the
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It would also state that the financial statement is free of material misstatements and in their opinion is fairly stated. In the 1920 version it said that in their opinion it is true and correct view of their financial condition. There were fewer regulations in the 1920s and after the stock market crash the government wanted to gain the trust of investors back so they created the SEC and had a set standard so investors and creditors can look at the report and understand it.

4) The balance sheet was thought to provide a clear picture of the company’s financial position so at the time third parties felt it was sufficient financial information. Over time more and more companies have become interstate and multinational corporations and there was more need for a federal standard. With the growth of public companies there were standards created so that investors would feel safe to invest and it would help the average investor and protect them from companies.

5) The auditor responsibility is to the client and audit risk is used to determine the amount of audit procedures needed to perform the audit at an acceptable level. The purpose is to be objective and should not be considering the type and number of third parties. No the auditor should not insist that the third parties be identify because they are not responsible to distribute the financial statements to the third parties, the client is. In doing their report it is for third parties but, they are doing the report

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