Legal Liability Considerations for Auditors

By: Carolin, Nadine (Esta), Kevin Susanto and Pricsillia

Case 1

Whitlow & Company case

What? Brokerage company
Situation: A company that registered under the Security Exchange Act 1934 A federal regulation dealing with companies that trade securities on national and over-the-counter exchange: auditors involvement due to annual reporting requirements include audited financial statement.

 The company has been audited by their CPA and issued unqualified opinion of the year ended; Dec 31, 2011.
Embezzlement during the year of 2011, Charles, the president of the company is engaged fraud scheme.

Resulting:
Huge loss (bankruptcy) Thaxton, suffered loss: purchase several share

Question 1

What Liability to Thaxton, if any, does the CPA have under the Security Exchange act 1934?

Answer
Identification:
> The auditors were facing audit failure; issuing incorrect opinion and deficiency of audit standard. Failed of liability: - Ordinary negligence - Breach of contract

 Defense of auditor:
- Lack of duty - Absence of casual connection

Question 2

 Availability of the liability to third parties under the common Law: to Thaxton (stockholder)
-Foreseeable user: an unlimited class of users that the auditor should have reasonably been able to foresee as being likely users of the financial statement. - Auditor should give a fact opinion regarding to the financial statements condition; clean or high risk of fraud.

- Avoiding major loss on acquired of share.