RLG205H5 Lecture Notes - Lecture 2: Confirmation Bias, Contributory Negligence, Financial Statement
Document Summary
Settling sets a precedent may cause more lawsuits to come your way. Expectation gap = what auditor thinks they are responsible for vs. what the investor believe the auditor is responsible for. Auditors may not be held liable if they have done their audit in accordance to cas therefore if they have done the appropriate procedures for a high risk company they are not held liable. They are only held liable if they were negligent in their audit procedures. Losses trigger losses: often happen during recessions. Client would sue auditor: likely when there is misappropriation of assets, so someone in company is doing something wrong and the auditor didn"t detect it. Common law liability: 3rd party suffers damages based on the audited financial statements, e. g. bank suing the auditors. Criminal liability: criminal charges like enron where auditor is involved in fraud. Business failure: when business cannot repay debt due to poor management, economic factors, etc.