The Auditor's Legal Liability to Third Parties Under Common Law

question 57

Multiple Choice

The auditor's legal liability to third parties under common law extends to:

• A) all third parties for all acts of negligence.
• B) all third parties for acts of fraud; select third parties for gross and ordinary negligence.
• C) select third parties for fraud, gross negligence, and ordinary negligence.
• D) all third parties for all acts of willful misconduct.
• E) all third parties for acts of fraud and gross negligence; select third parties for ordinary negligence.

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Definitions:

Financial Liability

An obligation that requires the entity to transfer economic benefits including money, goods, or services to another entity as a result of past transactions or events.

Convertible Debt

A type of bond or other form of debt that can be converted into a specified number of shares of the issuing company's stock at certain times during its life.

GAAP

Generally Accepted Accounting Principles, a set of accounting standards, principles, and procedures that companies must follow when compiling their financial statements.

APB

The Accounting Principles Board, which was an organization that set standards for financial reporting and accounting in the past, succeeded by the FASB.