chap 5 liability to clients

Question 1

what does the defense “contributory negligence” mean?

Answer 1

exists when the auditor claims the clients own actions either resulted in the loss that is the basis for damages or interfered with the conduct of the audit in such a way that prevented the auditor from discovering the cause of the loss

Question 2

what two ideas assist in a nonnegligent perfomance defense?

Answer 2

1. prudent person concept established in law that the CPA firm is not expected to be infallible 2. auditing standards make it clear that an audit is subject to limitations and cant be relioed on for complete assurance that all misstattements will be found

Question 3

in audits, it is often conclusive evidence of negligence when there is a failure to what?

Answer 3

meet auditing standards

Question 4

what does the defense “lack of duty to perform the service” mean?

Answer 4

the CPA firm cliams that there was no implied or expressed contract

Question 5

what does the defense “absense of causal connection” mean?

Answer 5

to succeed in action against auditor, must show that there is a close causal connection between the auditors failure to follow auditing standards and the damages suffered by the client

Question 6

what two ideas assist in a nonnegligent perfomance defense?

Answer 6

1. prudent person concept established in law that the CPA firm is not expected to be infallible 2. auditing standards make it clear that an audit is subject to limitations and cant be relioed on for complete assurance that all misstattements will be found

Question 7

the CPA firm cliams that there was no implied or expressed contract…what defense is this?

Answer 7

lack of duty to perform the service

Question 8

in most instances, any significant error or mistake in judgement creates at least a presumption of what?

Answer 8

neglignece that the professional will have to rebut

Question 9

exists when the auditor claims the clients own actions either resulted in the loss that is the basis for damages or interfered with the conduct of the audit in such a way that prevented the auditor from discovering the cause of the loss …what defense is this?

Answer 9

contributory negligence

Question 10

the question of level of care becomes more difficult in the enbvirnoment of a review or a complilation of FSs because?

Answer 10

there are fewer accepted standards to evaluate performance

Question 11

what is the principal issue in cases involving alleged negligence?

Answer 11

the level of care required

Question 12

The most common source of lawsuits against CPAs is from ?

Answer 12

clients regarding negligent acts

Question 13

what are the 4 defenses when there are legal claims by clients that a CPA firm uses either alone or in combination?

Answer 13

1. lack of duty to perform the service 2. nonnegligent performance 3. contributory negligence 4. absense of causal connection

Question 14

CPA firms and c lients typically use engagement letters, which are required for audits, to fomalize what ?

Answer 14

their agreements about the services to be provided, fees, and timing.

Question 15

what does the defense “nonnegligent perfomance” mean?

Answer 15

the CPA firm claims that the audit was performed in accordance with auditing standards

Question 16

to succeed in action against auditor, must show that there is a close causal connection between the auditors failure to follow auditing standards and the damages suffered by the client. what defense is used against this?

Answer 16

absense of causal connection

Question 17

exists when the auditor claims the clients own actions either resulted in the loss that is the basis for damages or interfered with the conduct of the audit in such a way that prevented the auditor from discovering the cause of the loss …what defense is this?

Answer 17

contributory negligence