Exam 5: Legal Liability

Discuss each of the four defenses a CPA firm can normally use when facing legal claims by clients. Which of these defenses is ordinarily not available against third-party suits?

According to the principle established by the Restatement of Torts case, foreseen users must be members of:

In an action against a CPA in a jurisdiction that follows the Ultramares doctrine, lack of privity is a viable defense provided the plaintiff:

An important concept in contract law for accountants to understand is the "third-party beneficiary doctrine". Explain and give an example.

Which of the following is an illustration of liability to clients under common law?

A common way for a CPA firm to demonstrate its lack of duty to perform is by use of a(n):

An example of auditor legal liability to third parties under common law would be the federal government prosecuting an auditor for knowingly issuing an incorrect audit report.

Match seven of the legal terms (a-j) with the definitions provided below (1-7): a. Common law b. Constructive fraud c. Breach of contract d. Joint and several liability e. Ordinary negligence f. Third-party beneficiary g. Gross negligence h. Statutory law i. Fraud j. Separate and proportionate liability ________ 1. Laws that have been passed by the U.S. Congress and other governmental units. ________ 2. Absence of reasonable care that can be expected of a person in a set of circumstances. ________ 3. Lack of even slight care, tantamount to reckless behavior that can be expected of a person. ________ 4. The assessment against a defendant of that portion of the damage caused by the defendant's negligence. ________ 5. Failure of one or both parties in a contract to fulfill the requirements of the contract. ________ 6. The assessment against a defendant of the full loss suffered by a plaintiff regardless of the extent to which other parties shared in the wrongdoing. ________ 7. Existence of extreme or unusual negligence even though there was no intent to deceive or do harm; also termed recklessness.

A CPA firm normally uses one or a combination of four defenses when there are legal claims by clients. Which one of the following is generally not a defense?

The Sarbanes-Oxley Act of 2002 makes destruction of audit documentation punishable by up to 10 years in prison.

The standard of due care to which the auditor is expected to be held is referred to as the prudent person concept.

Discuss three major factors that have contributed to the recent increase in the number of lawsuits against auditors and the size of awards to plaintiffs.

a(n. ________ failure occurs when an auditor issues an erroneous opinion because it failed to comply with requirements of auditing standards.