chapt 5 liabiltiy to third parties under common law

Question 1

ultramares doctorine broadened include third parties who are considered ?

Answer 1

foreseen users- class of users that the auditor knows will rely on the financial statement.(members that must be of a reasonably limited and identifiable group of useer who have relied on theCPAs work

Question 2

class of users that the auditor knows will rely on the financial statement.?members that must be of a reasonably limited and identifiable group of useer who have relied on theCPAs work

Answer 2

foreseen users

Question 3

what are foreseeable users?

Answer 3

any user that the auditor should have reasonably been able to foresee as a likely user of the client’s financial statements

Question 4

A CPA firm may be liable to third parties if a loss was inclurred by the claimant due to what?

Answer 4

reliance on misleading FSs

Question 5

any user that the auditor should have reasonably been able to foresee as a likely user of the client’s financial statements

Answer 5

foreseeable users

Question 6

what is the ultramares doctrine?

Answer 6

came from 3rd party liability auditing case.where precedent was set that ordinary negligence is insufficient for liability to third parties because of lack of privity of contract between the third party and the auditor unless the third part is a primary beneficiary (one that the auditor was informed about before conducting the audit or a known third party)

Question 7

what is the broadest interpreation of the rights of 3rd pary beneficiairies ?

Answer 7

the concept of foreseeable users?

Question 8

what do third parties include? (5)

Answer 8

1. actual and potential stockholders 2. vendors 3. bankors and other creditors 4. employees 5. customers

Question 9

what are foreseen users?

Answer 9

class of users that the auditor knows will rely on the financial statement.

Question 10

Which 3 defenses are available to auditors for 3rd party suits which are also available in suits against them by clients?

Answer 10

1. Lack of duty to perform service 2. Nonnegligent performance 3. Absence of causal connection

Question 11

auditors can be held liable to third parties who are not primary beneficiaries if there has been what on the part of the auditor?

Answer 11

fraud or gross negligence

Question 12

absense of causal connection in 3rd party suits oftent means what?

Answer 12

nonrelliance on the FSs by the user

Question 13

the Lack of duty to perform service defense in 3rd party cases contends what?

Answer 13

lack of privity of contract

Question 14

if the auditor is unsuccessful in using the lack of duty defense to have a case dismissed , the preferred defense in 3rd party suits is?

Answer 14

nonnegligent performance

Question 15

the audiytor can eliminate the need for the other defenses other than nonnegligent performance if he can show that they conducted the audit how?

Answer 15

in accordance with auditing standards