An Audit Client Loses a Lawsuit and the Judgment Is

question 20

Multiple Choice

An audit client loses a lawsuit and the judgment is for an amount in excess of the contingent liability the client had recorded in the audited financial statements.The auditor,using the typical degree of due care as other members of the profession,determined that the amount of contingent liability recorded by the client in the financial statements for the pending lawsuit was reasonable,given the facts at the time of the audit.This judgment by the auditor is likely to result in

• A) Sanctions by the PCAOB levied against the individual auditor as well as the accounting firm.
• B) A successful lawsuit claiming auditor negligence.
• C) A successful lawsuit claiming breech of contract.
• D) No legal action whatsoever since due care was exercised.

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Definitions:

Empirically Derived

Based on observations or experiences rather than theory or pure logic. Data or conclusions are drawn from experiments or systematic observations.

Socially Derived

indicates that something originates from or is influenced by societal interactions, norms, or structures.

Culturally Competent Scholarship

Academic work that demonstrates an understanding of and respect for cultural differences and the implications these differences have in research, teaching, and learning.

Social Justice

The concept of fair and just relations between the individual and society, measured by the distribution of wealth, opportunities for personal activity, and social privileges.