Explain the reason for the
Explanation of Solution
The Certified Public Accountant’s liability:
The accountants have both common law and statutory law liability. Common law liability emerges through court decisions for negligence, breach of contract, and fraud. Statutory liability is developed when the governmental units enforce laws and regulations either explicitly or implicitly imposed the liability on the accountants.
The reason for the potential liability of auditors for professional malpractice exceeding physicians or other professionals:
The important reason is the area of liability based on the users of the financial statements as prepared and audited by the auditors. When there are small misstatements in the financial statements its impact results in heavy loss incurred by the users and the potential users of those financial statements. The auditor’s liability is not restricted to the parties to the contract but includes third-party users also. Malpractice suits usually turn to be a small dollar recovery suits with huge litigation cost in any profession.
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Chapter 4 Solutions
Principles Of Auditing & Other Assurance Services
- What is meant by a “colorable claim”? Do you believe auditors should be liable for investor losses even if they follow generally accepted auditing standards?arrow_forwardWhy is professional skepticism important when completing an audit? Please explain.arrow_forwardPlease summarize tthings that CPAs can do to limit their liability and prevent lawsuits.arrow_forward
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