An auditor was sued and found guilty of negligence. For each of the following situations, indicate the likelihood the plaintiff would win if the plaintiff is: An investor suing under the 1934 Securities Exchange Act. An investor suing under the 1933 Securities Act.

An auditor was sued and found guilty of negligence. For each of the following situations, indicate the likelihood the plaintiff would win if the plaintiff is: An investor suing under the 1934 Securities Exchange Act. An investor suing under the 1933 Securities Act.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter4: Professional Legal Liability

Section: Chapter Questions

Problem 14RQSC

See similar textbooks

Related questions

Q: During the audit of the Merrill Manufacturing Company,Ralph Pyson, CPA, has become aware of four…

A: Lawsuit: lawsuit is the legal proceeding where civil action is brought by one party against another…

Q: Consider section 24 of the Securities Act of 1933 and section 32 of the Securities Exchange Act of…

Q: Auditors may be held liable to both their clients and third parties under common law. a. What must…

A: An auditor has an obligation to their clients and third part to exercise due professional care.…

Q: Which of the following items is not true about fraud?a. It can cause injury or damage to another…

A: Fraud is an intentional mis-representation of facts with the view to have unfair advantage for self…

Q: Mark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial…

A: CPAs are usually held liable if the company suffers losses based on statutory, common, or both the…

Q: action which can be taken by SAICA against the external auditor if he/she applied negligence in…

A: The action that can be taken by SAICA ( South African Institute of Chartered Accountants) against…

Q: Which of the following is a major difference in auditors’ liability under the Securities Act of1933…

Q: In comparison to the burden of proof required of plaintiffs in civil lawsuits against independent…

A: In comparison to the burden of proof required of plaintiffs in civil lawsuits against independent…

Q: In a common law action against an accountant, lack of privity is a viable defense ifthe plaintiff(1)…

A: In a common law action against an accountant, lack of privity is a viable defense if the plaintiff…

Q: Which of the following statements is true? The CPA firm will lose its independence if: A. a staff…

A: Meaning of Independence Independence generally implies one’s ability to act with integrity and…

Q: For each separate case, state whether the action or situation shows a violation of the AICPACode of…

A: “Since you have posted a question with many sub-parts, we will solve three sub-parts for you. To get…

Q: Under the Ultramares rule, to which of the following parties will an accountant be liable for…

A: The ultramares doctrine represents the ordinary negligence for liability to third party. It is…

Q: An investor seeking to recover stock market losses from a CPA firm associated with aninitial…

Q: . Win the case because the qualified business privilege protects investigators conducting internal…

A: Answer with explanation are as follows.

Q: An audit client is being sued for $500,000 for discriminatory hiring practices. Indicate the…

A: Auditor is the person who is responsible for performing audit process for the company by checking…

Q: Rationalization for fraud can fall under two categories: “no harm” and “no responsibility.” Assume…

A: Rationalization: Rationalization emphasizes on the justification provided by an employee and finds…

Q: The president of a public corporation recently commented, "Our auditor states that our financial…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Select the necessary words from the list of possibilities to complete the following statements. 1.…

A: Auditing- Auditing is the independent review of financial data from any company, regardless of size…

Q: A misstatement in the financial statements can be considered material if knowledge of…

A: We have the following question: A misstatement in the financial statements can be considered…

Q: When investors sue auditors for damages under section 11 of the Securities Act of 1933,they must…

A: The Securities Exchange Act 1934: "The Securities Exchange Act 1934 controls everyday trading of…

Q: Should the SEC and the Department of Justice have tried Andersen as a firm, or should they have…

A: Securities Exchange Commission (SEC): This is the government agency governs the working of financial…

Q: Which of the following cases provides auditors the broadest exposure for liability to thirdparties…

A: Under the case of Rosenblum Inc. v. Adler., auditors are provided the broadest exposure for…

Q: If either party fails to perform their contractual obligations according to the contract terms, it…

A: Auditing refers to the examination of the financial records of a business organization to verify the…

Q: What are the major differences in auditors’ liability under the Securities Act of 1933 and the…

Q: Which of the below statements regarding the right of the auditor to attend for the shareholder…

A: The incorrect option is c. Internal Auditor doesn’t have the right to attend the shareholders…

Q: Which of the following would be the auditors’ most likely defense in an action broughtunder the…

A: The Securities Exchange Act 1934: "The Securities Exchange Act 1934 controls everyday trading of…

Q: A waste disposal company has breached tax regulations, environmental regulations and health and…

A: As per ISA 250 Consideration of Laws and Regulations in an audit of financial Statements, It is…

Q: An auditor working with a publicly traded client learns that the client has been completing stock…

A: Auditor has to find out and determine the authenticity of the financial statements and also have to…

Q: An auditor was sued and found guilty of negligence. For each of the following situations, indicate…

A: Hello, I am only answering first three subpart as per the policy and if you want others to be…

Q: Edward prepares the report but carelessly fails to identify that C Ltd is not profitable. Which of…

A: The answer for the multiple choice question and relevant explanation are presented hereunder : The…

Q: Which of the following is not part of Sarbanes–Oxley?a. An increased duty on the part of auditors to…

A: Sarbanes Oxley Act (SOX): SOX is the act passed by the government to address the corporate scandals.…

Q: Which of the following statements regarding auditors’ liability under the Securities Act of1933 is…

A: Auditors are liable for some liabilities under Securities Act of 1933. The act relates to the…

Q: Under which act (or acts) must a client prove that a CPA has performed an audit with due diligence…

A: The Securities Act of 1933 was the first federal legislation used to regulate the stock market. The…

Q: The burden of proof that must be proven to recover losses from the auditors under the Securities…

A: The Securities and Exchange Act of 1934 (Exchange Act) is United States legislation that regulates…

Q: How does an auditor’s commitment to the firm, the profession, and to colleagues influence whether…

A: An auditor is influenced by various factors which have a direct impact on the reporting quality with…

Q: Individuals who believe they relied on misstated financial statements to make a decision andhave…

A: Misstatement: It can be defined as the difference between the presentation, amount, disclosure, and…

Q: For which of the following can a CPA be considered in violation of the Code of Professional Ethics?…

A: CPA professionals are expected to comply with the ethical standards as laid down by the CPA…

Q: Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of the…

A: Full form of CPA is Certified Public Accountants. It is a designation given by the American…

Q: Gordon & Moore, CPAs, were the auditors of Fox & Company, a brokerage firm. Gordon & Moore examined…

A: Audit refers to the inspection of the books of accounts that are prepared by the management and…

Q: An audit client is being sued for $500,000 for discriminatory hiring practices. Indicate the…

A: Auditor is the person who is responsible for checking and verifying the authenticity of financial…

Q: An auditor working with a publicly traded client learns that the client has been completing stock…

A: The answer for the question on the insider trading is discussed hereunder : What is insider trading?…

Q: violations of the rules of conduct of the Code of Professional Ethics

A: Unqualified opinion is an audit opinion in which the auditor gives a clean chit on the affairs of…

Q: Explain the legal basis for a cause of action against an auditor. What are the defenses available to…

A: Step 1 Auditors should report true and fairly which enhance the reliability of financial statements…

Question

An auditor was sued and found guilty of negligence. For each of the following situations, indicate the likelihood the plaintiff would win if the plaintiff is:

An investor suing under the 1934 Securities Exchange Act.
An investor suing under the 1933 Securities Act.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

Analyze each of the following situations below and provide your assessment of the potential resolution of each scenario, including potential liability for the auditor or audit firm involved. Yasmeen CPA is a defendant in a lawsuit alleging that she should be held liable for gross negligence for a fraud involving the valuation of securities included in the financial statements of one of his clients. Yasmeen was uncertain how to establish a correct valuation for the securities and decided to rely on the price estimation supplied by management. A lawsuit has been filed against Elena CPA, charging here with constructive fraud in the audit of Broughton Company’s financial statements. Elena has examined all the audit documentation in his files and reviewed all relevant auditing standards. She is convinced that his audit fully complies with standards of the profession but is uncertain what he should use as his primary defense tactic. Canon Film filed for a bankruptcy in January 2012. A…
When investors sue auditors for damages under section 11 of the Securities Act of 1933,they must allege and provea. Scienter on the part of auditors.b. The audited financial statements contained a material misstatement.c. They relied on the materially misstated financial statements.d. Their reliance on the materially misstated financial statements was the direct cause oftheir loss.
Which of the following would be the auditors’ most likely defense in an action broughtunder the Securities Exchange Act of 1934?a. The investor did not have privity with auditors.b. The investor did not suffer a loss based on the materially misstated financial statements.c. The auditors acted in good faith and were not aware of the materially misstated financialstatements.d. The financial statements were not filed with the Securities and Exchange Commission
An investor or creditor believes that they have suffered harm due to the unexpected the bankruptcy of a large corporation: Required: Can that investor or creditor sue the auditor of the large corporation under contract law? Explain. If the investor or creditor chooses to sue the auditor of the large corporation under tort law, what must they prove before their claim can succeed? How can the auditor contest a claim of negligence?
In comparison to the burden of proof required of plaintiffs in civil lawsuits against independent auditors under common law, section 10(b) of the Securities Exchange Act of 1934a. Is the same regarding plaintiffs’ need to prove damages or losses.b. Is the same regarding plaintiffs’ need to establish privity or a beneficiary relationshipwith auditors.c. Does not require that plaintiffs prove their reliance on materially misstated financialstatements.d. Does not require that plaintiffs prove that relying on the materially misstated financialstatements caused their losses.
A CPA issued an unqualified opinion on the financial statements of a company that sold common stock in a public offering subject to the Securities Act of 1933. Based on a misstatement in the financial statements, the CPA is being sued by an investor who purchased shares of this public offering. Which of the following represents a viable defense? A) The investor has not proven CPA negligence. B) The CPA detected the misstatement after the audit report date. C) The audit work was adequate to support the CPA's opinion. D) The investor did not rely upon the financial statement.
What does a third-party user of financial statements have to prove under common law in a suit against an auditor for the auditor's negligence? Explain each item with an example
Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements? A. The CPA is liable only to third parties in privity of contract with the CPA B. The CPA is liable only to known users of the financial statements C. The CPA probably is liable to any person who suffered a loss as a result of the fraud D. The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinion
Which of the following statements regarding auditors’ liability under the Securities Act of1933 is not true?a. The act relates to the initial issuance of securities to the public, normally through an initial public offering.b. Auditors’ liability arises because of audited financial information filed with the SEC.c. Third parties must demonstrate that they relied on misstated financial statements thatwere examined by auditors.d. Auditors may be liable if they are found to have engaged in ordinary negligence.
Which of the following is a major difference in auditors’ liability under the Securities Act of1933 and the Securities Exchange Act of 1934?a. The burden of proving reliance on misstated financial statements and the relationshipbetween these financial statements and the economic loss.b. The auditors’ required degree of professional care.c. Both of the above.d. Neither of the above
A group of investors sued Anderson, Olds, and Watershed, CPAs (AOW) for alleged damages suffered when the entity in which they held common stock went bankrupt. To avoidliability under the common law, AOW must demonstrate which of the following?a. The investors actually suffered a loss.b. The investors relied on the financial statements audited by AOW.c. The investors’ loss was a direct result of their reliance on the audited financial statements.d. The audit was conducted in accordance with generally accepted auditing standards andwith due professional care.
action which can be taken by SAICA against the external auditor if he/she applied negligence in auditing the financial statements of the company