Why Is Litigation Against External Auditors, Which Is Very Common

question 61

Multiple Choice

Why is litigation against external auditors, which is very common in the United States, virtually unknown in Japan?

• A) Japanese auditors rarely make mistakes in their professional work.
• B) Such litigation is inconsistent with Japanese values of interpersonal harmony.
• C) Japan lacks a sophisticated court system for handling complex cases involving accounting matters.
• D) External auditors are not responsible for the quality of work performed for a corporate client.

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Definitions:

Substitution Effect

The shift in consumption tendencies brought on by changes in the relative value of goods, compelling consumers to opt for an alternative product.

Utility Function

A mathematical representation that ranks alternatives according to their utility for an individual, illustrating preferences over a set of goods and services.

Substitution Effect

The change in consumption that results from a change in the price of one good relative to the prices of other goods, holding utility constant.

Income Effect

The change in consumption that results from a change in real income or purchasing power.