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PRESENT BY:
USWATUN HASANAH
BINTI SHUIB
NUR AMIRAH BINTI
ASMANI
VASANT A/L CHUAN
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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.
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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…
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Audit Risk
Audit Failure
Business Failure
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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.
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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
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Prudent Person Concept
Liability For The Act of Other
Lack of Privileged Communication
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Lack of Duty
Non-negligent Performance
Contributory Negligence
Absence of Causal Connection
The most common source of lawsuits
against CPAs is from clients.
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Lack of Duty
The lack of duty to perform the
service means that publicaccounting firm claims that there
was no implied or expressed
contract.
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Non-negligent Performance
For non-negligent performance in
an audit, the accounting firmclaims that the audit was
performed in accordance with
standards.
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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.
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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.
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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.
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Securities Commission Act 2003
Section 46 of Company Act 1965
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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.
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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.
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CPAs can be held liable under criminalliability for accountants.
CPAs can be found guilty for criminal action
under both federal and state laws.
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Research in Auditing
Standard and Rule Setting
Set Requirement to Protect Auditors
Establish peer review requirements
Oppose lawsuits
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Education of users
Sanction members for improper conduct
and performance
Lobby for changes in laws
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Deal only with clients possessing integrity
Hire qualified personnel
Follow the standards of the profession
Maintain independence
Understand the client’s business
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Perform quality audits
Document the work properly
Obtain an engagement and a representation
letter
Maintain confidential relations
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Carry adequate insurance
Seek legal counsel
Choose a form of organization with limited
liability
Exercise professional skepticism
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From:Uswatun Hasanah Binti Shiub
Nur Amirah Binti Asmani
Vasant a/l Chuan
WE HOPE YOU ALL