Presentation Audit - Legal Liability

8/6/2019 Presentation Audit - Legal Liability

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PRESENT BY:

USWATUN HASANAH

BINTI SHUIB

NUR AMIRAH BINTI

ASMANI

VASANT A/L CHUAN



© Hak Cipta Kumpulan Perbentangan, Kumpulan 5 DAT 6B Sesi Disember 2010



Audit professionals have a responsibility

under common law to fulfill implied or

expressed contracts with clients.

They are liable to their clients for negligence

and/or breach of contract should they fail to

provide the services or not exercise due carein their performance.




Both the number of lawsuits and sizes of

awards to plaintiffs remain high.

Despite efforts by the profession to address

the legal liability of CPAs…




Audit Risk

Audit Failure

Business Failure




Audit Risk

It represents the risk that the

auditor will conclude that thefinancial statements are fairly

stated and an unqualified opinion

can be issued when, in fact, they

are materially misstated.




Audit Failure

It occurs when the auditor issues

an incorrect audit opinion becauseit failed to comply with the

requirements of auditing

standards.





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Business

failure

Audit

failure

Auditrisk



Prudent Person Concept

Liability For The Act of Other

Lack of Privileged Communication




Lack of Duty

Non-negligent Performance

Contributory Negligence

Absence of Causal Connection

The most common source of lawsuits

against CPAs is from clients.




Lack of Duty

The lack of duty to perform the

service means that publicaccounting firm claims that there

was no implied or expressed

contract.




Non-negligent Performance

For non-negligent performance in

an audit, the accounting firmclaims that the audit was

performed in accordance with

standards.




Contributory Negligence

A defense of contributory

negligent exists when the client’sown action either resulted in the

loss that is the basis for damages

or interfered with the conduct of

the audit.




Absence of Causal Connection

The client must be able to show

that there is a close causalconnection between that auditor’s

breach or the standard of due care

and the damages suffered by the

client.




Ultramares Doctrine

Foreseen Users

Credit Alliance

Restatement of Torts

Foreseeable User

Auditor Defenses Against Third Party Suits

Describe accountants’ liability to third

parties under common law and

related defenses.




Securities Commission Act 2003

Section 46 of Company Act 1965




Securities Commission Act 2003

Any third party who purchase securities

described in registration statement may sue the

auditor for material misrepresentation or

omissions in audited financial statement included

in the registration statement.




Section 46 of Company Act 1965

It provided an auditor, as an expert who

authorises and causes the issue of the prospectus

is liable to pay compensation to persons who

purchase shares or debentures on the faith of theprospectus for any loss sustained by reason of

untrue statement or willful non-disclosure of any

mater which is material.




CPAs can be held liable under criminalliability for accountants.

CPAs can be found guilty for criminal action

under both federal and state laws.




Research in Auditing

Standard and Rule Setting

Set Requirement to Protect Auditors

Establish peer review requirements

Oppose lawsuits




Education of users

Sanction members for improper conduct

and performance

Lobby for changes in laws




Deal only with clients possessing integrity

Hire qualified personnel

Follow the standards of the profession

Maintain independence

Understand the client’s business




Perform quality audits

Document the work properly

Obtain an engagement and a representation

letter

Maintain confidential relations




Carry adequate insurance

Seek legal counsel

Choose a form of organization with limited

liability

Exercise professional skepticism













From:Uswatun Hasanah Binti Shiub

Nur Amirah Binti Asmani

Vasant a/l Chuan

WE HOPE YOU ALL

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Presentation Audit - Legal Liability