Auditingtestbankchapter5..docVIP

Auditing and Assurance Services, 15e (Arens) Chapter 5 Legal Liability Learning Objective 5-1 1) Discuss three major factors that have contributed to the recent increase in the number of lawsuits against auditors and the size of awards to plaintiffs. Answer: Major factors include: ? The growing awareness of the responsibilities of public accountants by users of financial statements. ? An increased consciousness on the part of the Securities and Exchange Commission regarding its responsibility for protecting investors interests. ? The complexity of auditing and accounting functions caused by the increasing size of businesses, the globalization of business, and the complexities of business operations. ? Large civil court judgments against CPA firms. ? The tendency of society to accept lawsuits by injured parties against anyone who might be able to provide compensation, regardless of who was at fault, coupled with joint and several liability doctrine. ? The willingness of CPA firms to settle legal problems out of court to avoid costly legal fees and adverse publicity, rather than pursuing resolution through the judicial process. ? The difficulty judges and jurors have understanding and interpreting technical accounting and auditing matters. ? The global recession and tough economic times result in business failures, which prompt stakeholders to seek restitution from others, including external auditors. Terms: Major factors that have contributed to the recent increase in the number of lawsuits against auditors Diff: Moderate Objective: LO 5-1 AACSB: Reflective thinking skills Learning Objective 5-2 1) A(n) ________ failure occurs when an auditor issues an erroneous opinion because it failed to comply with requirements of auditing standards. A) business B) audit C) ethics D) process Answer: B Terms: Failure which occurs when an auditor issues an erroneous opinion Diff: Easy Objective: LO 5-2 AACSB: Reflective thinking skills 2) The expectation gap: