Exam 24: Accountants' Liability

One of the accountant's most important roles is to serve as an independent evaluator of the financial statements issued by management to investors and creditors.

Manuel,in conducting an audit,must rely most heavily on rules found in generally accepted accounting principles (GAAP).

Ron is an accountant who was contacted by Zebra Toy Company to prepare financial statements.Zebra Toy Company told Ron that it wished to present these documents to Lion Wholesalers,Inc.,a large supplier of toys.If Lion is convinced that Zebra Toy Company is financially solid,it will issue Zebra a large line of credit. After Ron prepares the financial documents,Zebra presents the information to Lion Wholesalers and also to Tiger Toy Company,another wholesaler of toys.Zebra wishes to obtain a line of credit from Tiger as well as from Lion.If Ron committed a serious error by overstating Zebra Toy Company's financial soundness and the two creditors,Lion and Tiger,are damaged as a result,can these third parties recover damages from Ron? Explain.

Auditors cannot protect themselves from liability to third parties by issuing a qualified or an adverse opinion.

Clint is auditing MegaCorp.In reviewing the sales ledger,Clint saw that MegaCorp had sold 3,000 disk drives to CompSales,Inc.Clint reviewed the original invoice of this sale to ensure that the date,price,quantity,and customer's name all match.He then verified each step along the paper trail until the disk drives left the warehouse.This illustrates: