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Legal Liability - PowerPoint PPT Presentation


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Legal Liability. Civil Liability. Need to prove: Liability? (auditor at fault) Causation? (failure of audit caused damage) Damages? (amount of loss) Another issue: Privity Have the right to sue? Another issue: Burden of Proof Plaintiff or Defendant?.

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Presentation Transcript
civil liability
Civil Liability
  • Need to prove:
    • Liability? (auditor at fault)
    • Causation? (failure of audit caused damage)
    • Damages? (amount of loss)
  • Another issue: Privity
    • Have the right to sue?
  • Another issue: Burden of Proof
    • Plaintiff or Defendant?
civil liability different criteria
Civil Liability -- Different Criteria
  • Liability to clients (privity)
  • Liability to third parties under common law
  • Liability to third parties under statutory law
liability to clients concepts
Liability to Clients - Concepts
  • Due care
  • Comparative negligence defense
  • Confidential relationship
common law liability to third parties level of auditor s fault
Common Law - Liability to Third Parties: Level of Auditor’s Fault
  • Fraud

intentional misstatement or concealment of a material fact

  • Gross negligence

flagrant or reckless departure from the standard of due care, or willful and wanton misconduct

  • Ordinary negligence

an unintentional act, a thoughtless slip or blunder

common law liability to third parties approaches
Common Law - Liability to Third PartiesApproaches
  • Primary beneficiaries and near-client equivalents
  • Foreseen or intended beneficiaries
  • Foreseeable beneficiaries
statutory law liability to third parties
Statutory Law -Liability to Third Parties
  • Securities Act (1933) - Initial Offerings to the Public
    • Burden of Proof: Defendant
  • Exchange Act (1934) - Ongoing Reporting
    • Burden of Proof: Plaintiff
exchange act rule 10b 5
Exchange Act - Rule 10b-5

Need to prove that --

  • Auditor made one or more false representation(s)
  • Plaintiff relied on Auditor’s representations
  • Auditor knew or should have known representations were false
  • Damages were caused by Auditor’s representations
noted legal cases
Noted Legal Cases
  • Bar Chris
  • Yale Express
  • Continental Vending
  • U.S. Financial
  • National Student Marketing
  • 1136 Tenants Corporation
  • Equity Funding
  • Fund of Funds
  • Credit Alliance Corporation
  • Mann Judd Landau
  • ESM
  • Bily
  • Crazy Eddie
protection against liability
Protection Against Liability
  • Liability insurance
  • Quality control
  • Tort reform