chap 5 the professions response to legial liability

Question 1

what are some specific activies the profession can do to reduce lawsiuties

Answer 1

1. set standards and revise as needed to meet changing needs of auditing 2. oppose unwarranted lawsuits 3. educate investors and others who read FSs as to the meaning of an audtors opinion and extent and nature of auditors work. make sure they know cant guarantee accuracy of the FSs or future prosperity of audited company. accounting and auditing ar arts not scienes 4. sanction memebers for imporoper conduct and perfomance. 5. lobby for changes in laws

Question 2

Private Securities Litigation Reform Act of 1995 does what?

Answer 2

limits the liability of auditors by providing for proportionate liability

Question 3

It is also important for CPAs to do what 2 things to minizmize liability?

Answer 3

1. carry adequate insurance 2. choose form of organization that provides some form of legal liability protection to owners

Question 4

The AICPA and the profession as a whole can do the following to reduce practitioners’ exposure to legal liability? (3)

Answer 4

1. Seek protection from nonmeritorious litigation. 2. Improve auditing to better meet users’ needs. 3. Educate users about the limits of auditing.

Question 5

Practicing auditors may take the following actions to minimize their liability (6)

Answer 5

1/ Deal only with clients possessing integrity. 2. Maintain independence. 3. Understand the client’s business. 4. Perform quality audits. 5/ Document the work properly. 6. Exercise professional skepticism