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1、5-1Legal LiabilityChapter 55-2$2BillionpaidinS&LLawsuitsn Ernst&Young 1992$400millionn Deloitte&Touche 1994$312millionn KPMG 1994$187millionn ArthurAndersen 1993$82million5-3LawsuitsAgainstAuditorsn Expectationgapondetectionoffraudn Auditorsuedincivilcourtn Breachofcontractn Tortactionsfornegligence
2、n CriminalCharges5-4ChangedLegalEnvironmentAuditprofessionalshavearesponsibilityundercommonlawtofulfillimpliedorexpressedcontractswithclients.Theyareliabletotheirclientsfornegligenceand/orbreachofcontractshouldtheyfailtoprovidetheservicesornotexerciseduecareintheirperformance.5-5BusinessFailure,Audi
3、tFailure,andAuditRiskBusinessFailureAuditFailureAuditRisk5-6BusinessFailure,AuditFailure,andAuditRiskBusinessfailureItoccurswhenabusinessisunabletorepayitslendersormeettheexpectationsofitsinvestorsbecauseofeconomicorbusinessconditions.5-7BusinessFailure,AuditFailure,andAuditRiskAuditfailureItoccursw
4、hentheauditorissuesanerroneousauditopinionastheresultofanunderlyingfailuretocomplywiththerequirementsofgenerallyacceptedauditingstandards(GAAS).5-8BusinessFailure,AuditFailure,andAuditRiskAuditriskItrepresentstheriskthattheauditorwillconcludethatthefinancialstatementsarefairlystatedandanunqualifiedo
5、pinioncanbeissuedwhen,infact,theyaremateriallymisstated.5-9LegalConceptsAffectingLiability5-10MajorSourcesofAuditorsLegalLiability5-11LiabilitytoClients5-12LegalTermsAffectingCPAsLiabilityTermsrelatedtocontractlaw5-13Negligencen Tobeheldliable,theauditorsworkmustbeshownasnegligent.n Negligence(ordin
6、ary)isthelackofreasonablecare.n Whatwouldaprudentauditordointhesamecircumstances.n FollowingGAASisnotalwaysenoughreasonablecaren GrossNegligenceisthelackofminimumcare.n Constructivefraudn Fraud-anintentionalacttodeceive.5-14RelationshiptoSueforOrdinaryNegligencen Privity-partytoacontractn Musthavepr
7、ivitytosueforbreachofcontractn Contractbetweenauditorandclientn ThirdPartyBeneficiary(standing)n Investorsn Creditorsn Standingdependsonstatecommonlaw.5-15ThirdPartyBeneficiary-Standing1.Limitedexposureseveralstatesn Onlyliableifthethirdpartywasspecificallyknowntotheauditorandthatthethirdpartywouldb
8、erelyingontheF/S2.RestatementofTortsmajorityofstatesn Liabletoforeseenthirdpartyusers3.ReasonablyForeseeableUsersWisconsinandMississippin AlmostunlimitedliabilitytoanypossibleusersoftheF/S.5-16LiabilityandStandingn Grossnegligenceandfraudareabasisforliabilityintortregardlessofprivityorstandingn Ordi
9、narynegligencerequiresaprivityorthirdpartybeneficiaryrelationship5-17LegalTermsAffectingCPAsLiabilityOtherterms5-18AuditorsLiabilityn Jointandseveralliabilitylegal-DeepPocketsn manystatelawsallowthirdpartypersonstorecoverdamagesfromthepersonwiththedeepestpocketsn Proportionateliability-sharedrespons
10、ibilityofthedamagesbasedonfault5-19PrivateLitigationReformAct1995n FederallawsuitsunderSEC1934Actn Somestateshavesimilaractsn Usesproportionateliabilityn Responsibilitydividedamongpartiesn Ifsomeofthedefendantsareinsolvent,mayincreasesolventdefendantsshareby50%ofwhattheyowe.n Jointandseverallyliable
11、tosmallinvestorplaintiffs(under$200,000andlost10%ofnetworth)n KnowinglycommittingaSECviolationcanmakedefendantjointandseverallyliable5-20SecuritiesLitigationUniformStandardsAct1998n Lawyerswantedtofilelawsuitsunderstatelawn Takeadvantageofjointandseveralliabilityn Easiertoholdaccountantsliableforord
12、inarynegligencen Thisactrequiresclassactionlawsuitsof50ormorepartiestobefiledunderfederalcourts5-21BurdenofProofonPlaintiffn Showadamageorlossn Necessaryprivityorthirdpartybeneficiaryrelationshipn F/Saremisleadingn ReliedonF/Sn F/Sweredirectcauseoflossn Accountantwasnegligentorworse5-22DefensesforAc
13、countantn Nostandingorprivityn F/Snotmisleadingn AuditwasinaccordancewithGAASperformedwithduecaren PlaintiffdidnotrelyonF/Sn Losscausedbysomethingelsen Contributorynegligence-plaintiffcontributedtolossn Plaintiffdidnotsufferarealloss5-23ForeignCorruptPracticesActof19771.Requiresacompanytokeepreasona
14、blerecordstoallowfairpresentationofF/S.2.Requiresacompanytodeviseasystemofinternalcontrols3.Prohibitsbribestoforeignofficials4.AdministeredbytheSECfor1&2above5-24StatutoryLawLiabilityn ForeignCorruptPracticesActn SECactsof33and34n Violationsofinternalrevenuecode5-25SECn SEC33-prohibitsfraudulentacts
15、relatedtoinitialofferingsofstocktothepublic.n SEC34-prohibitsfraudulentactsrelatedtosubsequenttradingofstocks.n Gavepowertoestablishaccountingrulesn Reliesonaccountingprofessiontosetstandards5-26SecurititiesAct1933n Coverpublicofferingsofsecuritiesn Requiresfilingofregistrationstatementn RegulationS
16、-XrequiresannualauditedF/SandinterimunauditedF/Sn RegulationS-Krequiresdisclosuresandothersupplementalinformation5-27ExchangeAct1934n RegulatesTradingofSecuritiesn Companieswith$10MillioninAssetsormorethan500stockholdersrequiredtoregistern Requiresthefollowingreportsn Form10KAnnualReportn Form10QQua
17、rterlyReportn Form8KSpecialEventReportn EDGARelectronicdatagathering,analysisandretrievalsystem5-28Liabilityunder1933Actn Section11allowsallpurchaserstosuen AccountantsareconsideredexpertsonF/Sinformationontheprospectusn Accountantshaveadditionalburdenasexpertn Shiftsburdenofprooftoaccountantn Accou
18、ntantsaregivensafeharborforinteriminformationonforecasts5-29Liabilityunder1933ActCont.n StatuteofLimitationsn Within1yearofdiscoveryofmisstatementn Orwithin3yearsofofferingn DueDiligenceDefensen CausationDefensen Section17Fraudunlawfulunderactn Section24setcriminalliabilityforfilingmisleadingF/S;fin
19、esandprison5-30LiabilityUnder1934Actn Rule10b-5Antifraudn Unlawfultodefraudbuyer/sellersecuritiespubliclytradedonanationalmarketn Mustprovescienter(intenttodeceive)n Section18CivilLiabilityn PersonsmakingfalseormisleadingstatementsareliabletopersonsthatsufferalossfromrelyingofF/Sn Auditormustprovegoodfaith,noknowledgeofmisleadingstatements.n Section32CriminalLiabilityfinesupto$10,000andimprisonmentofupto5years.