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[書摘]英文審計案例(含評論)-5  

2010-03-03 22:40:52|  分类: 转帖:我是搬运工 |  标签: |举报 |字号 订阅

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Chapter 5: Legal Liability

It Takes the Net Profit from Many Audits,

to Offset the Cost of One Lawsuit

Orange & Rankle, a CPA firm in San Jose, audited a small high-tech client that developed software. A significant portion of the client’s capital was provided by a syndicate of 40 limited partners. The owners of these interests were knowledgeable business and professional people, including several lawyers.

Orange & Rankle audited the company for 4 consecutive years, from its inception, for an average annual fee of approximately $13,000. The audits were well done by competent auditors. It was clear to the firm and to others who subsequently reviewed the audits that they complied with general accepted auditing standards (GAASs) in every way.

In the middle of the fifth year of the company’s existence, it became apparent that the marketing plan it had developed was overly optimistic and the company was going to require additional capital or make a significant change. The limited partners were polled and refused to provide the capital. The company folded its tent and filed bankruptcy. The limited partners lost their investment in the company. They subsequently filed a lawsuit against all parties involved in the enterprise, including the auditors.

Over the nest several years, the auditors proceeded through the process of preparing to defend themselves in the lawsuit. They went through complete discovery, hired an expert witness on auditing-related issues, filed motions, and so forth. They attempted a settlement at various times, but the plaintiffs would not agree to a reasonable amount. Finally, during the second day of trial, the plaintiffs settled for a nominal amount.

It was clear that the plaintiffs knew the auditors bore no fault, but kept them in the suit anyway. The total out-of-pocket to the audit firm was $1 million, not to mention personnel time, possible damage to their reputation, and general stress and strain. Thus, the cost of this suit, in which the auditors were completely innocent, was more than 75 times the average annual audit fee earned from this client.

 

Lead-in:

This chapter on legal liability and the preceding chapter on professional ethics highlight the environment in which CPAs operate. We focus on these chapters now to provide an overview of the importance of protecting the profession’s reputation as being one that is viewed as highly ethical and to highlight consequences accountants face when others believe they have failed to live up to that ethical standard. Legal liability and its consequences for the profession are serious. This chapter highlights ways CPAs can be held liable for the professional services they provide.

As the auditors at Orange & Rankle in the opening vignette learned the hard way, legal liability and its consequences are significant for CPAs. It is estimated that the profession’s aggregate liability exposure exceeds $30 billion. Although firms have insurance to help alleviate the impact of assessed damages, the premiums are high and the policies available to the firms have large deductible amounts. The deductibles are such that the large firms are essentially self-insured for losses of many millions of dollars.

Legal liability can have serious consequences. One large national accounting firm, Laventhol & Horwath, filed for bankruptcy because of a large number of malpractice suits with large damage amounts facing the firm. Another large national firm, Panell Kerr Forster, closed or sold about 90% of its offices and reorganized its remaining offices as individual professional corporations partially because of litigation it faced.

Accountants’ liability also affects the profession in human terms. For example, a study completed in 1994 indicated that of partners and managers leaving the six largest auditing firms in recent years, 29% were influenced by the threat of litigations, and 46% were influenced by the effect of ongoing litigation costs on future profits.

This chapter focuses on legal liability for CPAs both on a conceptual level and in terms of specific legal suits that have been filed against CPAs. It also highlights actions available to the profession and individual practitioners to minimize while still meeting society’s needs.

 ====================================有話要說的分割線 ====================================

我ri,這幫所謂的合夥人,明明是自己所托非人,是他們不肯追加投資替管理層埋單才弄得公司破產的,跟核數師一毛錢的關係都米有。這群鳥人明知道核數師在年報審計中沒有任何過失還把他們告上法庭,就等著事務所庭外和解賠錢。當CPA是新奇士橙啊,捏一捏就能榨出汁來?有本事找自己請的管理層去鬧咧。[書摘]英文審計案例(含評論)-5 - maxpayne0594 - Call of Duty

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