Abstract
Like other professionals such as physicians and architects, auditors are liable both civilly and criminally. Civilly, an auditor can be found liable either under the common law or a statutory law liability. Common law liability arises from negligence, breach of contract, and fraud. Statutory law liability is the obligation that comes from a certain statute or a law which is applied to society. The scope of both common law liability and statutory liability has been expanded to include certain third parties, mainly the foreseen or foreseeable users of audited financial statements. Also, a lawsuit in a state court provides greater protection than the one brought before the federal court.
Keywords
- Audit Firm
- Fiduciary Duty
- Audit Financial Statement
- External Auditor
- Certified Public Accountant
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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Notes
AU-C Section 210; Source: SAS No. 122, paras 9 and 10.
Idem, para. 20.
Idem, paras 35–39.
Idem, para. 20.
Idem, paras. 14–17.
Cerillo, William A., Proving Business Damages, Wiley Law Publications, 1990, pp. 1–3, 4.
World Radio v. Coopers & Lybrand, 251 Neb. 261, 557 NW 2d 1 (1996).
World Radio alleged damages in the following particulars
Inability to obtain or raise equity capital for expansion.
Inability to expand its business by opening new stores and increasing credit lines.
The making of operating decisions based on false financial information.
Inability to conduct normal business operations.
Lost revenues.
Lost discounts, rebates, and advertising allowances and participation credits.
Inventory losses.
Decrease in employee morale.
Attorney, accounting and polygraph fees.
Ryan v. Kanne, 170 NW 2d 395, Iowa.
Larsen v United Fed. Sav. & Loan Assn., 300 NW 2d 281, Iowa.
Shatterproof Glass Corp. v. James, 466 SW 2d 873 (Tex Civ App).
Coleco Indus. v. Berman, 423 F Supp 275 (ED Pa).
Rosenblum v. Adler, 93 NJ 324 (1983) 461 A2d 138.
AHERF Creditors’ Comm. v. PwC, No. 2000 CV 684 (W.D. Pan. January 17, 2007).
National Surety v. Lybrand, 256 A.D. 226 (1939).
Shapiro v. Glekel, 380 F. Supp. 1053, 1056 (SDNY 1974).
Reeves et al. v. Ernst & Young, 507 US 170 (1993).
Blair A. Nicholas ‘Auditor Liability: Institutional Investors Pursue Opt-Out Actions to Maximize Recovery of Securities Fraud Losses’, Securities Litigation and Enforcement Institute (PLI), 2008, p. 9.
Idem, p. 11.
Continental Vending [US v. Simon, 425 F 2d 796 (2d Cir. 1969)].
Ronald M. Mano, Matthew Maurissen, and Ryan Pace, ‘Principles-Based Accounting: It’s Not new, It’s Not the Rule, It’s the Law’, The CPA Journal, 2006.
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© 2014 Felix I. Lessambo
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Lessambo, F.I. (2014). Auditor Legal Liability. In: The International Corporate Governance System. Global Financial Markets series. Palgrave Macmillan, London. https://doi.org/10.1057/9781137360014_20
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DOI: https://doi.org/10.1057/9781137360014_20
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