Audited Financial
Statements:
The Accountant's
Pe-::.pon·:, it. iIi t:;.'. L i ·:<.b i 1 ih·.
and
Against Li tigation
P~ecautions
An
Thesis (ID 499)
Hono~s
B'Y'
,Jud i th Ann C:u 1/'
Th e·::. i·::. D i r' e e tor'
Ball State
t"'lune i e.
Unive~si
I nd i
ty
B.nB.
t·'j.:<.:;.' 1 '7'B4
G~aduation
Date:
May 19B4
{ 'J c; '{
OUTLlr···lE
:'1r,'[
I.
In t r' o:)du c t i on
A.
Bri@f HistorY
B. Th@ Past 20 Years - Impact on Auditing
1.
I ncr·@.:"·:::.e in neql i gene@
2.
Inc r' 12·:" se i n 1 i .:O.b i 1 i t y'
I I .
Gener·.:O.l Pe·:·c.on·:.ibi 1 it:;." of Audi tor-=:.
A.
The View of the Profession
C:l ients
1•
.:0..
GAAS
t,.
eon fide n t i .:0.1 it ....·
c. m i -=:·eoncep t ion':. clf eli en t·:.
d.
management responsibi 1 ty
Other users of financial statements
2
The Profession's Pespons@ to the View of Others
B
1
The Cohen Commission
.:0..
eonelu·:.jc)ns
b.
recommendations
C.
The View of the Government
1
The Securi ties and Exchange Commission
a.
concerned wi th disclosure
b.
promulgates standards and rules
I I I.
Le q.:o.1 L i .:O.b i 1 i t /. of Au d i tor":A.
Important Concepts
1.
B.
t···le 9 1 i 912 n c e
2.
Fr·a.ud
3.
Burden of Proof
Common L':O.I.. .,1
1.
Cl ient
.:0. .
.:o.U d i tor' . ' s 1 i .:o.b i 1 it·...·
b.
c i I.} i 1 ·:o.C t i on
e.
burden of proof
d.
def@n·:-e·:.
2.
Third Parties
a.
classes of third parties
b.
.:o.U d i tor' ....:. 1 i .:o.b i 1 i t y'
c .
c i i 1 ·:o.C t i on
d.
burden of proof
e . de fen ·:·e .:.
:3 t.:o. t u tor' 'F" L .:0. 1.....1
1.
:::;12 C!J r' i tie .:. Ac t of 1 -;:-::::3
a.
requirements of the act
b.
a.udi tor··. ·:. 1 i .:O.bi 1 i t/·
c.
burden of proof
d.
Escott v. BarChris Construction Corp.
2.
Securities and Exchange Act of 1934
a.
requirements of the act
b.
section 10(b)
1::' ·:o.u d i tor' . ' .:. 1 i .:O.b i 1 it>"
I....
C: .
3.
D.
Cr'
1.
2.
2) burden of proof
3) Hochfe1der v. Ernst & Ernst
c .
':;e c t i on 1:3
1::' d.udi tor· . ·:. 1 i .:'.bi 1 it::,.
2) burden of proof
Other' Feder·.:'.l .3.nd :::;t.3.te Std.tute·:.
a.
Federal False Statements Act
b.
Federal Mai 1 Fraud Act
c.
Federal Conspiracy Statute
d.
:3 t .:.. t e L.:.,I.....I·:;
imi n.:'.1 Li .:'.bi 1 it::.
De':, c r· i p t ion .~< Com p .:.. r' i son t 0 C i I.} ilL i.:.. b iIi t
United States v. Simon
IV. Precautions Against Litigation
A.
8.
I..) .
Accounting Standards
1.
Vn 01..·.11 edge ·3.n d e omp 1 i ·3.n e e
2.
Beyond the Standards - Good Judgement
Recommendations by the Profession
1.
C lie n t d.C Ce p t d.n c e d.n d r' e ten t ion
2.
Engagement letter
C!u d.1 it/" eon t r' 0 I
4.
8.:.. I ·3. n e i n ':';1 gr' 01.....1 t h d. n d q u .:.. 1 it::" con t r' a 1
5.
DefEnsive auditing
6.
Legal adVice
Cone 1 U·:· ion
A.
:::;ummd.r· ::,'
B.
New Areas Presenting New Legal
1.
Compi lation and review
2.
For·ec.3.·:.ts
C.
Thoughts on the Future
Questions
~,.,
Th i·::.
Audi tors help to preserve economic freedom.
statement might surprise some people, but
it
is the truth.
One of the major characteristics of our free economy is our
que .::. t for' per' f eo c t c om pet i t ion .
Perfect competition
r' e (1 u ire .::. e f f j c i en t mar' k e t s· su p pI i e d
1)..1
i t h c mnp 1 E' t e
A portion of this information
i nfor·m.::'.t i on .
.::'.lJdi toO,d fina.nci.::.l
is provided by
·::.ta.tements..::'.nd other' report·::.
·::.UPI)
1 ied t,>"·
As a result, accounting and auditing
·::,.ccoun t.:<.n t·::.•
functions have become an essential
element
in maintaining
our free and competi tive society.
American auditing originated from Scottish and Sri tish
accountants who came to the Uni ted States during the late
1800s to check on Sri tish
investments in American
The::." .::..udi ted book,::, b>' check i ng in deta.i 1 the
i ndu·::.tr i e'::·.
additions and postings in an attempt to detect fraud,
f r' ·:o.u d
i)..I.:O..::.
u '::·IJ .::'.1 1}"' not f ou n d be c ·::..u 'se i t
leaving cash receipts out of the books.
1'7':=:0:.,
the number· of
1...·,1·::'.S·
S::.·'
but
·:o.C c omp 1 i ·::.h e d by'
the e ·::'.r· 1 'T"
in'.)e·::.tor··::. in cor·por·.:o.te ·::.tock·::..::'.nd
bonds had increased dramatically.
Audi tors had to change
their audi ts to accomodate stockholders and investors.
emphasis changed from the balance sheet to the
.::. t a. t eme n t .
1..,.1
The
income
i t h the e's t a.b I i ·::.hme n t of the f e de r' .:0. i
securi ties laws of 1933 and 1934 came the first audits
required by law.(l)
Throughout the 40s and 50s, many
accountants, accounting organizations, and the SEC were
disappointed in the slowness of the accounting profession
in e·::.t.::'.bl i s.h i ng account i n'~ pro i nc i pI es·.
A 1 a.c k of
2
understanding and agreement on the basic postulates and
principles underlying the accounting practice contributed
Ever since the principles have
significantly to the delay.
bee n
E' .::.
br·o.:;'.d"
t .:;.. b lis h ed,
the : .., h.:;.. '.} e bee ncr' i tic i zed .:;...::. be i n g too
They permit the management to influence the
impression conveyed by financial
them to choose between several
statements by allowing
accounting methods.
The
effect of this influence can be misleading to the users of
the f,nancial
statements.
Occurences in the past twenty years have had a
significant
impact on auditing.
Controversies~
such as the
broadness of accounting principles discussed above, along
with criticisms by the SEC, members of the accounting
profession, and other
interested parties, nurture an almost
con tin u .:;. 1 i n t e r' est b}' the fin .:;.. n c i.:;.. 1 P r' e'::· sin .:;.. c c 0 u n tin g
t···jume r' ou .::.
principles and the accounting profession.(2)
·::.ca.nd.:;'.l·::. in the 1 a.te .:;.0,::,
.Ih i ch r'e'su1 ted in cour·t·::. r'ul i ng
1....
t h.:;.. t:;..u d i tor"::, h .::'.d been neg I i ge n t
gener·:;'.1
in their' duties, p I u .::. the
di s:.tr·ust of the ·::.::..··::.tem b::.·· the pub1 i c due to
f.,..I.:;..ter·.~a.te
C.:;'.u·::.ed a.udi tor"s to I o·::.e the i r' cr'edi bi lit::.',
The
pr·ofes:.·::.i on ha.d to con·::.i de,' the adequa.c::.·· of qua.1 it::..· contr'ol
.:;'.nd pr·clfe·::.·::.ion.:;'.i
di·::.cipl ine.
r' e c on .::. i de r' the hi·::. tor' i c .:;..1
AI'3o,
.1.::..s:. time to
1....
i .je .:;.. t h a. t a.n ·:;..u d i tor'
responsible for searching out fraud.
go'. . er·nmen t.:;'.1
it
Cou r' t .::.
i·::. not
.:;'.n.j
agencies decided it was time to be tougher on
.:;.. u d ito r' .::. .:;.. n d pI:;.. cern 0 r' e 1 i.:;.. b iIi t : ..' CI nth e i r' s h 0 u 1 de r' .::. •
of this caused the accounting profession to be greatly
A1 I
One
concer·ned.
becoming more
governmental
al I
common,
in
p.:'.per·
the
operation
.~.
e::q:,] or'es
.Ii 11
li·J
ill
: .::.
·::.hould be
ser·'. . e
to
the
the i r'
r'esponsibi 1 i tie':,
1.....Ih.~.t
.:'.t
r·e·::.pc,n·::. i b i I i t::,..
en':;;t2<.':;;tement
financial
form an
~
they are
Th i·::.
for'.
02
r·ega.r·d
that
accountants should
be
to a.udi ted f i na.nc i .:'.1
inc 1 u de d,
.:'.1 on g
1..',1
take
i t h a.u d i tin'~
opinions of what
The
an
f.;..ir·
be -::. t i n t
to
i·::.
t h.:.. t
the
02
r' 02 s t s
l
to c 1 i en t·::..
ha.·::.
v..!i th pr·c,fe·::.si
con '::. i ten t
publ ic."(4)
Fir·st.
i n';r pro i rp: i p1 e'::·
th.:'.t
I..".!
When
accepting an
t.~.ken
on
the
or
not
the
i-::.
.~.'::.
est.:..bl i -::.hed
t.:..sk
on.~.l
i t h h i -::.
it
h2<.'.)e
statements and related supporting
opinion on whether
the
.:'.nd c.:'.ndid v..!i th hi·::. cl ient·::. .:'.nd
.:..ccount.~.nts
the .:..udi tor'
user"::. of
"A c e r' t i fie oj put, 1 i c
~
of his 2<.bi 1 i t::,··~
be·::.t
audi tor's
profession's view based on
are presented fairly and conform with
.~.ccount
1 i .:'.bl
tOl/,lar·,j his c1 i ent-::. .;..nd other'
.:..ccc,urlt.:..pt
look
is becoming a major
.Ii th
1.•'.
A I CPA Pro of e ·::.s· i on a. 1 S t .:'.n d2<.r· d·::.
to
in
r·es.ponsi bi 1 it::,·, .:'.nd 1 e'~.:..l
gener·.:..1
statements.
con c e r' n for'
trend
be hel d
are many different
them
investigations by
future.
r·e-::.ponsi bi 1 it::,.
financial
fraud cases
accounting firms."(3)
1..'•
Precautions
the
There
the':,,'
the
1 i t i ':d':" t i on
trends for
of
.~.ccountant·::.
t erne n t s· •
.~.g.:.. i n <;:. t
wi th
taking extra precautions because
·::·ur·e v!h.:'.t
I i .~.bi·1 it::,·· of
.::. t
and with
this disturbing
Accountants are
no 1 or'jI~er'
"Today~
agencies and resul ting 1 i tigation exploding
directions.
factor
stated~
author
impor·t.:'.nt
the i r'
audi t
of
eX.:'.mi n i ng
information
financial
to
statements
generally accepted
h2<.'.}e been con·::.i ·:;tentl:;.-· .:..ppl i ed.
4
It
is his duty
.:. t ·:'.n dar' d,;, •
to follow generally accepted audi ting
Un de r'
properly plan his
irregulari ties
f i nanc i a.l
(3AA S
~
h e h .'0<. ';.
examination~
the
to search
a.nd
to e:>::er'c i se
conducting his examination.
As
performed
GAAS~
f
1J
in
accordance with
1 f il 1 e d hi;. prof e':·';· i on .:'.1
guarantee
or
for
that would have a material
·:.ta.tement·:.,
insure
(; C F'A .;. 1 ':·0 h .;.s.
due
long as
the
i n f or·m·;. t i on
con fide n t i .;.1 .
confidenti.:'.l
infor·m.;.tion
':Y i l'j
the
Generally,
iithout
the
I.....
A,;. .;. r' e s·u 1 t,
•
i t
r·e,:.pon·:.i bi 1 it::.'
to .;. cl i ent
o~)inion
cl ient····:. fin.:'.ncia.l
t h.;. t
on
the
the
c 1 i e nth d. oj not
i f .;.n
t
he
:.ituations
in which
d i .:. c 1 0 .:. e con f ide n t i.:.. 1
,,) .:.. 1 i
oj
.:. u b poe n
.;:..
the
authorization
0
r·
1.'•.1
k eep
0
of
.E!.
cannot
of
in .;.11
cas·e·:·.
to
inc 1 u oj e c om p 1 ian c e
an
inquiry made
state CPA society.
inauiry made
1.".1
i t h.:..
the AICPA or
by
the
a simi lar
under state
(5)
There has been
a.ud i tor'
GAAP and
qU.;.1 i f i ed hi·:.
d.pply
Board of
S.td.tute·:.•
but
i t h GAA P •
ethics division or Trial
an
disclose
I.} 0 1 u n t a. r' : •., qua. 1 i t ~•., re'·) i e 1.,',.1 u n de r'
the AICPA.
or
c lie n t
accountant may be required
i n for' m .;. t ion
.:. u mm 0 n ';"
He Ijoes. not
st.;.tement·;. .::'.nd di·:.clo·:.ed
m.;.int.E!.ining confidenti.:'.l it::.·· doe':, not
Some
has been
cl ient····:. con·:.ent,
·;.udi tor'
c om () 1 i e d
.:. m·;. in
a misconception
obj ec t i I.)e
in
has
.:.. I.) i 01 .;. t i on
·.I0U 1 d not be
1...
the
.;.nd c·;.r·e
audit
this does not prevent him from complying wi th
I~"""""-'
~HH·='
on
irregulari ties.
r' e s· p 0 n s· i b i 1 i t y
the
effect
auditor
errors or
0
errors or
r' e ':.p on .:. i b i I i t i e':· •
against
t
r' e s· p 0 n .:. i b i I i t /.
in
the
past
in per·fclr·m i ng .9.lJd its
is.
that
the
an
c:,_I
detection of fraud.
As is stated
above~
the accounting
profession maintains that the purpose of an audit
determine
if financial
is to
statements are presented fairly.
The margin between the perceived and actual
r'e':,pon':,i bi 1 it i e'=:: .;:'.·:,·:.umed b'," d,n .;:..ccount.;:'.nt in per'for'mi ng a.n
audi t
is commonly referred to as the "expectation gap."
Wi th the drastic
increase in management fraud that has
occur'r'ed in the p.",,·:.t h',.Ienty· ye.:'.r":., cl
agencies, and users of financial
ient·=.~
gOI,..'er·nment.;:..1
statements have wanted to
inc r' e·;:'..:. e t hi,:. g a. p b : ." r' e qui r' i n I;:) m0 r· e r' e s· p 0 n '::. i b iIi t y for'
de tec t i ng fr'.:..ud duro i ng
:::; t .:', n d:.. r' d .:.
,;:'.Ulj
it·:.•
The Statement on Audi ting
issued by the AICPA sets forth
t,··~ 0 •
d.udi tor··. ·:. r·es.pon·:.ibll i t":... for'
states that normal
the
the detection of fr·d.ud.
It
audi t examinations are not primari Iy
de·:.igned to di·:.clo·:.e fr·a.ud .;:..nd ':.hould not be r'el ied upon to
Al ':.0.
if the di ·:.co'.)er·/' of .:'.11
fr·.;:"ud 1.·'·.Ier·e ·:'.n
objective of the audi tor's examination,
the amount of worK
required would increase the cost to a point where no one
could afford an audi t.
Even then there would be no
assurance that any existing fraud had been detected because
of the nature of fraudulent acts such as unrecorded
transactions, forgeries and collusion.
I:; u d ito r":· doh d. I.} e
con du c t of d.n
not
included.
,:'.U
r' e':· p 0 n ':. i b iIi tie ':;. tot h e c lie n t i n the
d it. bu tin f .:',1 1 i b iIi t ::." ,:'.n d c I ,;:.. i r",} o:;,··.;:..n c e ·:'.r' e
It
is reasonable for an audi tor to rely upon
the truthfulness of certain documents and the genuineness
of certain documents provided by management.
Th i·:.
i s,
"lh .;...
1.•
·:=.ome
of
r' e ':=.p on .:=. i b i I i t Y' mu s t
the
Management
should be
misrepresentation
fr'om
,:he
misrepresentation,
I f an accountant
f~ 1 on
.~.ccount
i
g
for
i}..!
n'~
f.~.i
n f or·m.9. t i on
and no apparent
the
fol lows customary
reason
.~.ccount.~.nt
disclose
exists
';houl d not be
~elps
r·e.:'.1 i ze·:=·
to pr·omote
f i n·~.nc i .;:..1
t o t h e c 1 i en t.
th.:'.t
i t
.~.l-=.o
the
h.~.:=. .~.
Au d i t c,r' .:=. c ·~.r· r' ::•.,
pub1 i c i}.Je 1 f.9Te .
to ensure
·:.t.~.tement·:.
that
investors and other
fair
and relevant.
information
hel d
the misrepresentation.
pr·ofe·:=.·:=.i on
r'ness of
any
to expand
t-, i .:=. r·e·;pon·::. i b i I i t·:.·· b::.' e::<pr·e·:=,·:=. i ng op i n i on':· on
This
to
the
procedures do not
i t h r' e ';p on sib i I i tie s·
r·e·::.!::.on·:=. i b i i i t:;.'
ou t
those
pr·ocedur·es.,
responsible
for
and withholding of material
·;:'.udi tor.
.~.udi t
to m.9.n ·~·geme n t .
sh i f ted
held responsible
auditing procedures,
the
be
The
of pubi i cl
financial
users of
e::·::ch.:..nge
is an essential
t:-·.9.ded f i r·m·:.•
y'
information
financial
of r'e I i
element
the
available
statements
.~.bl
of our
is
e f i n·;:'.nc i .:'.1
free marKet
.:. ::"':. t em.
The
,~e
n e r' .;:.. 1 pub I i c
':.1 iqhtl::.' differ'ent
accountants.
the
This
.~. n
against
is apparent
t
0
to
the
the
recent
.~.
criticism of
increase
In cases
to detect
statements.
e':., .9.1':.0
was establ ished by
c r' i tic j ·:·m .:.. b 0 u t
the
failure
in financial
on Audi tor·····:. F.:e·:.ponsi bi 1 i t i
Commission,
from
due
auditors for
misrepresentations
e :>:: p r' e s .:. e ,j
tt,e r·e·:.ponsibi 1 i ty of
\}ie'...,' of
accounting profession
brought
d·:. om e c 0 u r' t s h.:.. \} e
c.~.ll
the AICPA
ed
in
.;:.. u d i tin 9 p r' 0 f e':· .:. jon .
Th e Comm i·:.·:. i on
the
Cohen
1974 to respond
Th e
Comm j ':=.':=. i on
7
did a studY based on legal
final
.~.
cases against audi tors.
The
reoort which was issued in 1978 was considered to be
The results lead to some very significant
1 .~. n dm .~. r' ~:: .
The study found that a significant percentage
of financial
statement users consider fraud detection
one of the most
fr'equen t
c·~.use
important objectives of the audit.
of .;:..ud it f.;:.. i I ur·e·:· is the
interpretation or
pr'oncluncemen t·:..
to be
i ncorr'O?C t
implementation of accounting or auditing
The profession
is concerned about the
Commissions verification that courts have shown a
1.'•.1
ill i n 9n e':·':· to hoI d
.~.U d
m·~.
i tor' .:. r' e ':'p on s i til e f or'
misreoresentations in financial
statements.
t e r' i .:.. I
The ·:.tudy ':'.1
':·0
found that audi tin9 fal lures were not a resul t of a
deficiency in auditing standards and these failures can
ne'·)er· be tot.;:..] 1':," el imi n.:.ted because hum':'.n er·r·or· I.'..li 11
e::{ i
·:.t.
(6)
.~.ll.'. I.;:..yS
Some of the recommendations by the Commission
include a report by management
in the annual
.;:.. C~:: n OI.A.I led I~ ern·;:.. n .:.. gem e n t .' s· r e':::· P 0 n .:::. i b iIi t ::,., for'
statements and to describe the status of
report to
the fin -2>. n c i.;:.. 1
internal
and an expanded audi tor's report that wi I
control
focus on the
company's representations contained in the report by
The e>::p.:..nded r·epor·t 1"',loul d r'equ i r'e the
to e::-::p.;:..nd hi·:::. 2')·;:'.1
u.~.t
i on of
i nter·n.~.1
Commission also concluded that
r·e·:.pon·:.i bi 1 it>' to
.~.ct
it
contr·c.l.
tor'
The
is the audi tor's
i •. . el y' ·:.e.;:'.r·ch for' fr·':'.ud
simply bein9 alert for
.~.udi
r·.~.ther·
th.~.n
i t.(7)
The 90'.}er·nmen t a 1':.0 ha.s. a.
I.)
i el.'..1 of the r·espon·:. i b iIi t::,·,
of audi tors that differs from the view of the accounting
The Securities and Exchange Commission
p r' of e'::·':· i on •
generally the agency that speaks for
the government with
The SEC can be described as a
reQard to audi ting matters.
regulatorY agency with vast quasi-legislative and
quasi-judicial
powers whose rules and regulations have a
direct and significant
impact on the accounting profession,
e':· p e c i .:c. 1 1 /. r' e I;:) .:c. r' din I;:) .:c. c c 0 u n t .:c. n t "s. I i .:c. b iIi t ::." • ( :::: ;.
The :::; E C
t.:cYe·:, the po·:.i t i on th.:c.t the publ i c a.ccountant····:. dut·:... i·::. to
·:..:c.fel;:)u.:c.r·d publ i c
0
1.)
e r' .:'.n y
in ter·e·:.t .:C.nd th i·:. du t::,·, ta.ke·:; (:Ir'ecedence
du t'r" tot h e c lie nt,
The accountant"s duty is
carried out by verifying and communicating material
information from financial
and GAAS does not result
information,
statements.
in the disclosure of such material
the SEC maintains that
promulgate addi tional
I i .:C.b iii t ::,' .
the n e ::< t
First, some
r·e·:.ponsi bi lite':. of a.udi tor':, hal..!e
t h i n I;:) toe ::< p lor' e the i r' leg .:c. I
important terms that are frequently
encounter'ed 1..·.,1hen di·:.cu·:.·:.in l;:) leg.:..l
c 1 ·:C.r· i fie d .
of pr·oof.
I:) r' CI '::. '::;.•
is has the power to
standards and rules.
'···Jov.,1 tha.t the gener·.:c.1
bee n e >:: ·:C.m i ned,
If fol lowing GAAP
I i.:C.bi lit:;.'
1,1.,1i
II
be
The·E.e ter'm':' .:C.r·e ne l;:)1 i gence, fr·aud •.:C.nd bur'den
t···Je g 1 i ge n c e .:.:c.n be cIa. ·:;s· i fie d a.':· or·d i n ·:C.r· y' or'
Or·d i n ·:C.r ',' n e I~ 1 i ge n c e
i,:;,
the f .:c. i I u r' e to u s·e
reasonable care when performing services.
is the fai lure to use even minimum care when performing
':·e r· I.} i c €' ':.•
Ne 1;1 I i g e n c e c .:c. n r' e':· u I t f r' om .:c. .:. p E' C i fie .:c. c tor'
from a fai lure to act.
It
is often predicated upon a lack
In order for an accountant to be
of honesty and loyal ty.
con·::.i der'ed ne';:)l i .;:)ent, he mu'::.t f.:O.i I to per'for'm
in accordance with what a reasonable
·::·er·'.'! ices
.:~.ll
accountan~
would do
under simi lar circumstances.
Fr·a.ud i·:.
the
intentional misrepresentation of a material
deceives and then
fact which
Accor-'din9 to the
injures another party.
cour·t·:., fr·.:O.ud mu·:.t u·::.u.:O.ll::.· include .:O.I. '..Iillful
intent to
Four requirements that need to be present for
defr·.:O.ud.':: 9)
f r' a,u d to oc cur' ·::r.r· e the
i n ten t i on torn i '::.1 e .::r.d 1,<.lh i chi .::.
referred to as scienter, a false representation or the
con c e .::<.1 me n t of .;:.. m·::<. t t e r' of f .:o.c t
tr·.:O.ns.Ot.ction
in que·:.tion,
t h .: <. t
ju-=.tifi.~.b]e
i '::. m·;:.. t e r i .::<.1
tot h e
r'el i.::<.nce b';.· the
plaintiff on the false statement, and injury as a result of
the r"= I i a.nce .
The lack of any of these requirements can be
used as a defense
in fraud cases.
Burden of proof means the burden of comin,;:) forward
with evidence to prove or disprove a relevant and material
fact
that
.:o,udi tc.r·,
is beln9 disputed .
In 1 i t i g.::<, t i on
·~.9a.
in'::. t ·:O.n
ther'e ,:oT'e four' el ement·::. tha.t deter'mi ne the
The burden of proving any or all
of
these elements rests on different parties in different
s i tu.:o. t i on'::·.
These elements are damage or loss resul ting
f r' om r· eli .:0, n c e u Don fin .:0. n c i .: <. 1 .::. t .:0. tern e n t .::.
misstated financial
0
r' a. d'.'! ice ,
statements or erroneous advice,
reI i ·:O.nce upc.n f i n.:<.nc i .:0.1
·::.t.::<.tement·:. or' .:<.d i ce •.:O.nd .:0.
def i c i enc::.· in the a.ud i tor' . ' .:. conduc t.
i ....
In civil
cases, which
10
include
neq] i qence
proof must
favor
only provide
to win
cases where
reasonable
ca.':· e':· ,
the
case.
quilt
or
evidence
This
Common
1 a.I.....!
law
law reflects
cl ient
is for'
f r' ·3.U d .
Th i·:.
re 1 ·3. t i on·:.h i [)
Under'
Y'
be tl..'.Ieen
the
·3. n don
the
I.·-·.Ir i t t en.
I t ma./· be
contr·.3.ct
·3. client
of
be
bur'den
than
proven
i 1 .0<. C t ion
contract~
0:. f
the
i
b.3. ·:·e d
S
c 1 i en t
·3. u d ito r' .' ';:.
doe':, not
leqal
precedents
A·:. a. r'esul t.
society at
the
time
to
l;Jr'o':":' neql il;)ence~
or'
the
a.nd
.3.ud I tor'
the
i n de pen den c e
h.3.'.... e
to be
·:O.n
a.uditor·
0: pro i
I....
i t/· of
f r' om c 1 i e n t
for·m.:O.l1::.'
imp1 i ed.
the
th.:o.t
duties of
b r' e .:;0. c h
auditor
0
f
the
con t r'
.:;0. c
h.:o.s f.:o.iled
contract.
tor'
he may seek
tor' t .
Un de r'
the
c lie n t
to monetary damages.
precedent wi th
v.
.:;O.udi tor' 1.·-·.1.3.';:· hi r'ed
to
br' e ·O<.C h
has usually violated qenerally
be b.-.Je e n h i m·:·e I f
Corp.
the
con t r' a.c t u .3.1
r' e I .0<. t i on ·:.h i p
1136 Tenants'
the
1 i .:<.bi 1 it·,.··
1.0<.1.,,1
on
the
confidential
the
his
beyond a
the
important
in
in criminal
accepted accounting standards or
subject
of
.:. t a. t u tor' :,., 1 .0<.1.....1
c·O<.ses.
common
t,elie\)e·:.
properly carry out
I.)
1 eqal
values of
1 i .3.b i I i t
The
Ci
in
or·din.O<.r·::-' neg I il::)ence~
contr·ol.
.:0.
is different
is derived from
the
decisions were made.
,Jhen
the
that welqhs qreater
1 i ab i I i t Y' or'
e·:.t.O<.bl i ·:.hed to::.' dec i ·:.i on:·
i.•
.Ii th
li.
doubt.
1 i.o<.bi 1 i h·'.
con t r' 3. c t ::0,
pa.r·t::-'
innocence must
c 1 .0<. ':.':. : fie ,j .0<.•:. c Ctfnmon
common
the
.:;O.n d
One
regard
Max
case
that
to breach
Rothenberg
&
.O<.n d m.:<.::··· be
set
of
Co.
to per'for'm ser·'..J I ces for'
an
contract was
I nth i S· C .0<. ·:·e
the
cl i ent
~
•
11
but no engagemert letter was prepared.
1.,..11""1 en
i t
1.....1.:<.·::.
discovered that a former manager had embezzled funds,
c 1 i en 1: ·::.ue,j the a.ud i tor' bec.;:'.u·::.e ·;:'.n
[)er·for-·med.
In defense,
.~.ud
the
it ha.d not been
the auditor claimed that he had not
been hired to do a complete audit, only a write-up,
court found in favor of the plaintiff.
In
The
it·::. opinion,
the
court stated that a wri te-up engagement requires certain
definitive audit procedures, hiring a CPA presumes an
audi t. an audi t may be adequately performed wi thout
indeoendent verification, and accountants have a duty to
detect
defalcat~on.
The first
three of these
have
~ould
letter',(10)
Tor·t 1 i .;:'.b iii t /. oc cur' .::.
nonco~ltr·a.ctu.;:'.1
1..,.11""1
en
·~.n
dut:;.-· r·e·::.ul ting in
Monetary damages may be awarded.
i'ltention.~.I.
In
accountant.
c omrn itt e d
1.....1
c ou n t ·;:'.n t br' e ·~.c he'::.
injur')" to
If
per·=.c,n.
.~.nother·
the tor' t
.~.,jdi
I....J.~.·::.
t i on to the tor·t 1 i .~.bi lit::.· of the
t h i nth e'::· cop e
The burden of proof
i .~.t, iIi 1:":." tot h e c lie n t
0
ia.ble
f
the
if the tor·t
.~. c c 0
i·::.
u n t a. n t ." s ern 1:' i
0
::"'m e n t .
in cases concerning common law
i·::. p I ·~.c e d on the p I .~. i n t iff.
F:e c .~.l
that the plaintiff has the burden of proving the four
e 1 em e n t .::.
financial
0
.~.
the '.}ictim i=..~.I·::.o entitled to puniti'..le
the firm also is
i
·~.c
f.;:.. u d ito r' . ' .:. 1 i.;:.. b iIi t y :
damage or loss,
the
statements were misstated or erroneous advice
gi '·.len. r'el i ·~.nce on f i n·;:'.nc i .::<.1
·:.t.::<.tement·5 or er·r·oneou·::.
advice, and deficient auditor conduct.
Defen':::;'€":::;' ca.n be
bui 1 t on the weakness or nonexistance of any of these
e 1 eme n
The defenses used depend primarily on the
t ': :;..
circumstances of the case, but there are a few that are
TI. . .lo ·:::;.uch defen':;e':::;' .:'.r·e due d i
frequently used.
con t r' i bu tor' >., n e.; I i ge n c e .
defense
'1
i gence .:'.nd
The defenda.n t . ' ': :;. due d iIi gence
is that he did not know and in the exercise of
reasonable care would not have discovered the omission or
misrepresentation of
information.
The defens.e of
contr' i butor'::'" nee)] i .;:)ence c·:'.n t.e used to I imi t .:l.udi tor'
the .:.. ': c 0 u n t .:l. n t .' ': :;. f .:l. i I u r· e top e r' for m the con t r' .:.. ct.:.. n d t 0
r·epor·t tr'ue
infor·ma.tion.
Au d i tor' ': :;. h -::'.'.) e a. 1 i .:l.b i ] it::.·· tot h i r' d p ·:l.r· tie ': :;. un de r'
common law as well
who have an
as cl ients.
interest
don " t ha.'.)e a cc,n tr·.:l.c t
': :;. t 21. t eme n t s· •
Third parties are parties
in audi ted financial
1.....1
i th the ·:O.ccoun t.;:'.n t
statements. but
.Iho a.ud i ted the
1••••
There are three classes of third parties:
primary beneficiaries, foreseen beneficiaries, and
foreseeable
c1 lent but
third parties.
1.•••.
li 11
A primary beneficiary is not a
r·ecei'.)e a.n .:l.udi t r·epor·t th.;:'.t h.:o.s. been
prepared expressly for his benefit.
An
e:{ .:O.mp
] e of .;:..
primarY beneficiary is a bank which requires audi ted
financial
1 oa.n.
statements from customers who want to take out a
Foreseen beneficiaries are not specifica] ly
ide n t i fie d to.;:.. 'J d ito r' ':::;.. but the i r' ,;:) e n e r' .:l. l i d e n tit : ..' a. n d
specific purpose for relying on the audi ted financial
1 .-:.
'-'
statements are
.:.p e c i ,: i c .:'.1 1 /. cr'
expected
Foreseeable
known •
c;le n e r' .:'.1 1:."
to rely on
third parties are
i de n t i fie d,
audited financial
tlU t
.:; t i l l
m i l;;Ih t
be
statements.
i n '·) e':· t or":· '. . .Ioul d f.:;..11
I n'·... e·=· t or":. .:'.nd potent i .:;'.1
not
i I"ItCI
th i .=.
ca. t e I;' CI r' /' •
The
c omm 0 n
1 .:;..1..•..1
1 i .::.. b i I i t y'
0
f
·:;..u d ito r' .:.
third party classes varies directly with
removed from a contractual
·:·er· I.) ice':·,
a.udi t
Since
the
how far
agreement wi th
the
a primary beneficiary
·:.pec i·f i ca.l1 ::.., i dent i f i ed to
1 i.:;'.bil it·:..· to
toe .:;.. C h
the
.:;'.udi tor'
by'
pr·imaTY· benefici.:;'.r)" .:;..nd
0
f
the
each
is
auditor
for
is
the
the
0:1 i ent,
cl ient
the
.:;'.r·e
the
fr·.:'.ud.
Foreseen beneficiaries are
contractual
agreement
Tr·a.di t i on.:;'.11 /',
they have
decisions
I.).
in
I~r'os':'
This
the
i ncr·e·:;..se
the
Since
r' em 0 I.) e d
I e.:;..s.t
nel;il
il~ence
two cases
one
example
I i .:;'.b i I i t·y· of
but
in
a. fel..,.!
Rusch
that
to for·e·:.een
supports
Inc.
trend
.:;'.ccoun t.:'.n t·:..
to
the
furthest
.:;.. u d i tor":. h.::.. ,.} e
th i·:. gr·oup.
.:'.':.
benef i c i .:;'.r· i e':·,
the current
third parties are
1 i ab i I i t::.··
Factors,
·:.uppor·t orlji n·:'.r·/· neg] i gence
f r' om .:;'.: 0 n t r' .:;.. c t u .:;.. 1 1 i.:;.. b i I i t). ,
of
the
to for·e·:.een
.:;..nd fr·.aud,
in particular,
K.:;..nne.
foreseeable
amoun t
so
The
.:;'.udi tor· . ··:. Ii .:'.bi l i t i e':·
is Just
1 i .:;'.b] e
the
been
LeI.} i n .:;..nd RY.:;..n I.).
one of
removed from
primary beneficiaries.
.audi tor":. h.:;.'.... e been
benefici.:;'.r·ie·:, for'
cases
than
farther
the
Aud i tor·s. .:;..r·e
to
14
1 i .:'.bl e
·:'.n d
to for·e·;.ee.:'.bl e
9r'0';'-:' ne91 i g ence
for'
02-:'
f r' ·:..U d.
The
ca-:.e
of
Ultramare-:. Corp.
primary ca-:.e
for
Ii .:'.bi lit::,.·
to
IH'
~).:'.r
During an
tie';"
material
c 0 u r' t
or'
th i r·d p.:..r·t i
fore-:.eeable
The
0
bJrden
.:.. r· 02
the
audi t.
that
the
c cur'
.:.. u d
j
for'
action
for'
can
for"
Touche
tor' 1..<.1 .:.. ';.
the
Be ';. i de ';.
that
and
.:.. I I
be
the
third party can
can
the
auditor's
th i r'lj
02
a
p r' i ITJ·:'. r' )"'
bel i .:<. b 1 e
0
t h i r' d p .:.. r' tie ';.•
Tor·t
i,;,
The
of
proof
burden
e I erne n t .=. of
f ou r'
receive
t
0
I~e
defen-:.e-:. of
third party because
au d i tor' ." s
audi tor-:..
be
awarded
tht? ci'.}il
i-:. on
n cede fen ';·02
In c·::<.·;·e·;·
th.:'.t
there
the
lack
A
damage-:..
e ::q) 1 .:.. i ned e ·:'.r· lie r' •
of privity and
i n'..!ol',! i ng
.:'.udi tor'
the
1 i .:'.b i I i t y' •
both monetary and punitive
the
pro i I.} it::,. me·:'.n·=·
a9ain-:.t
can
taken.
r'el i ·:'.nce
taken
that
audi tor-:. can u-:.e
of
t
damage-:.
d iIi
L.:'.cl<
an
to uncover
Ii.:.. b l e t 0
be
du 02
02
failed
.:.. u d ito r'
the
ju·::.t i f i ':'.bl
for
the
fictitious account-:. receivable.
proof~
of
';. ':<.m 02
pl.:.. i n t i f f
precedent
ha-:. been
third partie-:..
civil
the
of
t h.:.. t
f r·:,. u d m u .:; t
1e9al
Touche
im':<.r··:,.· benf i c i .::<.r- i e';· .::<.nd for' e·;·e e.:'.bI
amount
r' u led
action
-:.etting a
v.
th i r·d p.::<.r·t i t?::.•
is. not
i-:. no contract
Ii .:'.bl e
between
to
them.
the
The
..i us t i f i .:'.b 1 e r' ell .:'.n cede fen ';·02 c ':'.n be u -:.e d '.....Ih e nth e de fen d.:'.n t
bel ie·. . e·=.
th.:'.t
rel/ing on
the
:=:; t .:'. t u tor' ::.-.
the
(:.].:..intiff
financial
1 .:..1. ...1
i';.
"
i....
<.1':<.';. not r·e.:..-:.on.:..bl/ ju·;.tified
1..
in
-:.tatements.
.1 r' i t t 02 n
I .:..'. . .1"
t hat
i·::. e S. t ':'. b 1 i .:; he db':,"
15
f e de r· ':1.1
.:..n d s· t .:.. tel
e,~
i ·::.1 .:.. ti'..' e bod i e s .
The primarY federal
statutory laws that have an affect on the accounting
profession are the Securities Act of 1933 and the
Secur ties and Exchange Act of 1934. By passing these acts.
Conl~r·es·:. Ii·.! a.·:.
a.ttempt i ng to m.:..Ve a.ccount.:..nts mor·e Ii abl e to
th i r·d p.:..r· tie·:.•
The Securities Act of 1933 regulates the
The s.a.l e of
original offering and sale of securities.
·::·ecur· it i e·:· .:..f ter· the f i r··:.t
thi·::.
~:;ct.
i s·::·u·:..nce ·:..r·e not co'..'er·ed under·
The Act r·equ i r·es· th.:..t
pub I i c 1 ::,. ·:·e I l i t .::. ·:.e cur· i tie .:.,
in or·der· for· ::..n ent it>' to
t h.:.. ten tit .:,. mu s t f i 1 e a.
registration statement (usually an S-I) and a prospectus
This is done
in an attempt to promote full
and fair disclosure and prohibi t fraudulent
misrepresentation regarding the original
issuance and sale
of ·:·e cur· i tie s .
Accountants come under the 1933 Act when they aid in
the preparation of registration statements and
or·o·:·[)ec tuse·:..
The specific on which most
against accountants is based is Section 11
11. ·:..n .:..ccount.:..nt gener·.:..ll:;.' qu.:..1 if i e·:;
incur·
li.:;..bilit:~··
.:..-:. .:..n
i t i
I~.:'.
t i on
Under· :::;ec t i on
e::-::per·t .:;..nd
.Ii 11
1••'•
.:..-:. to a.n omis.·:.ion or· fa.lse ·:.ta.tement of .:;..
material fact unless he had, after a reasoGable
that the statements were true and that no material
1.....1
e r· e om itt e d .
facts
If an accountant violates Section 11, he may
be 1 i .:..bl e to the pur·ch.:..·:;er··::. clf ·:.ecur· it i e·::· for· or·d i n.:..r·::,'
16
The burden of proof under the Securi ties Act of 1933
does not rest solely upon the plaintiff or the defendant.
The plaintiff must prove that he suffered damages and
and that the financial
statements were material Ix misstated
or erroneous advice was given.
t h:<. the ·;<.c ted
1..•..1
i
loss~
The defendant must prove
t h du e d iIi ge n c e an d t h .:<. t
not rely on the financial
the pI .:<. i n t iff did
statements.
The case of Escott v. 8arChris Construction Corp. had
great
influence upon the accounting profession with regard
to I i:<.b iIi t .;. . un de r· :::;e c t i on 11 of t he 1 '7'33 Ac t .
I n the
case, an S-1 review was reauired to examine the events that
had occured between the balance sheet date and the
effective date of the registration statement.
Marwick, Mi tche 1
]
& Co. performed the S-1 review because
they had audi ted the most recent financial
statements.
The
senior who was in charge of the review was not yet a CPA
and was working on his first engagement as a senior.
the sale of the securi
After
8arChris filed for banKruptcy.
ties~
Pe.:<.t. r···l.:<.r·v..Ii ck c1 <l.imed <l. due di Ii gence defen·::.e.
Trle cour· t
ruled that accountants should not be held to a standard
t h <l. t
but
i·::. h i 9h e r· t h <l.n the on e e -;:. t <l.b I i sh e d
b:~"
the p r· of e .::.-;:. i on ,
in this case the accountants did not maintain that
standard.
The defendant had the burden of proving the due
d iIi ge n cede fen ·'E·e ·3.n d did not e f f e c ti'.} e 1:;.-· do
court/s opinion prompted the
Audi tin9 Procedure No. 47,
·::·CI.
Th e
issuance of Statement on
"Subsequent Events,n. as well
as
·::.etting <l. pr·ecedent th.o<.t a.udi tor··. s. could be held I i.3.ble for·
1.l
or·din'~'.r·::,'
ne<:;ll
il~ence
-='
.-
under· the Secur·i tie-=:. Act o-F 1':;:'3::::.
The Securities and Exchan<:;le Act of 1934 taKes over
It re<:;lulates the tradin<:;l of
where the 1933 Act leaves off.
securi ties that have previously been
of the Act
The pur·po·::.e
issued.
is to promote fair and adequate disclosure of
public1·:.' he11j comp':'.n i e'::· on .:.. continuin';j ba.·::.i·::.•
are required to submi t periodic
Entitie'::'
information as well
as a
re<:;listration form (commonly form 10) to the SEC •
.:'.1'::.0 r'equ i r'e,j to en1 i ·::.t thE' ser·
Accclun t.:'.n t.
I.)
ice'::. of .:.. C:er·t i f i ed Publ i c
Th e l i .:'.b iIi t ::.' of C:PA·::. un de r' t h i'3 Ac t '3 t em'::·
f r' om the i r·
i n I.) 0 1 I.) e men tin the Ij i -=:. c los u r' e p r' 0 c e s s •
.:..ccount.:'.nt
i·::. I j .:'.bl e for' er·r·or··::· in f i n·:'.nc i.:.l
An
·::.t.:'.tement·::.
contained in a prospectus or other filed report even thou<:;lh
it
is unaudi ted if there are errors which he knew or
reaso,ably should have Known.
A purchaser or seller of a securi ty usually brings
18 of the 1934 Act.
10(b) .
In f.:..c t.
e }:: p a. n din I~ .:.. r· e·:..
0
th i·::. ·::·ec t i on
f
1 i.:.. b iIi t >'
IJ
i
-=:.
II
the most r·.:..p j dl >'
n de r· fed e r· a. I .::. e c IJ r' i tie s 1 .: <.1. . .1 .::.
for' f i r·m·::· .: <..::. I,,·)e I 1 .:...::. d i r' e c tor .::.. of f ice r"::.. .:'Tl'j p IJ b 1 i c
accountants.H(11
lOb - 5.
it
Accordin<:;l to Section lOeb) and Rule
i -=:. un I at·,.1 f u Ito u .::. em·:.. i I .::.. .:.. n yin .::. t r'u men t .:.. lit y. 0 f
interstate commerce. or any national
defraud any person
securities exchan';je to
in connection wi th the purchase or sale
under these provisions is very broad because the provisions
c·
1 '-'
cover any false or misleading
whether or not
it
statement~
regardless of
is filed wi th the SEC.
1 i .:'.bl e to ·::.e 11 er .::. or' pur·cha.-::.er"::, for' ';lr·o·::.·::. neg! i ';lence or'
fraud for not complying wi th this section of the 1934 Act.
The burden of proof under section IOCb) rests entirely
on the plaintiff.
The plaintiff must prove that he
suffered damage or loss.
the statements were materially
false statements or advice. and the auditor's conduct was
deficient.
Hochfe1der v. Ernst & Ernst has been a landmark case
r·eg.;:..r·di n9 a.ccounta.nt . ··::· 1 i .:'.bi 1 it). under' Pul e 101:.-5 of the
Securities and Exchange Act of 1934.
The case resulted
from the discovery that the president of First Securi ties
Corporation was using the funds of
iJ
":-e •
investors for his own
Investors had sent funds directly to him with the
understanding that he would deeosi t
·~.CCCIIJ .-J
t .
"m.;:'.i
r' u 1 e"
ma.i 1.
the funds in an escrow
He kep t his fr·a.ud a. ·::·ecr·e t by esta.b1 ish i r,,~ the
!..•..1
h i c h p r' 0 hit. i ted .:;. n ). 0 nee] .::. e f r' om
When the fraud was
discovered~
0
pen i n':j rl i·::.
the accountants were
Af ter' r'u 1 i ng'::' in f.:..'''! or' of Er·n·::.t 8.,
Ernst
in District Court and against them in the Court of
Appeals~
the case reached the Supreme Court.
and not the "intent to deceive. manipulate. or
Er·n·::.t
.~<
Er·n·::t
1.•••.1.;:...::.
not 1 i a.b]
e.';:
12)
The Cour' t
defraud~"
The Court pointed out
that Congress intended for Pule 10b-5 to apply to something
much
·::.tr·onger·
·:·c i en ter·
.3.nd not mer·e
l
Ijeci·:.ion
but
beh.3. '.}ior·
C.3.n
the
lett
question
r·e·=.ult
in
ill
the
·:.utt i ce.
The
.3.ccount.3.nt ... s·
lia.bi1it::,··
some questions unanswered by
ot whether
li.3.billt::,. under·
·:.coj:1e
ot
or not reckless
:3ection
I i a.b IIi t::..· under· :::;ec t i on
Securities and Exchange Aet
::::ect i on
i
1.....1
lOb-5 cl e.3.r·I;." ·:.ta.te·:.
10(b)
10<b)
beca.u·:.e
Under
t h the SEC .
ot
1934
persons who maKe
j:1ur·ch.:c.s.er··:. a.nd ·:::·e 11 er··:;· ot
·:::·eeur· i t i e-=:· v,lho r·e 1 i ed upon
between
·.le r· e
I...
the
.:. t .:c. t eme n t .:..
The
must
it
bur· den
the
orove
iT!
price
In or·der·
ot pr·oof
olaintitt
that
of
for·
or
the
dell: ume n t .:. ·:c.r· e l i .:c.b 1 e
.:.. CPA
to be
1 i a.b1 e
th i·:. s·ec t i on
detendant.
loss was
Th e
900d
faith
-:.t.:c.tement·:.
There
Secur· i t
j
.:..'}oid
1 i.:..tli 1
j
t-;." b::," pr·o!..!inl~
and had no Knowledqe
(due
are
other
e·::· Act·:.
a.c c ou n t ·:..n t .:..
di 1 i
.lh
I/.
j
These
of
he mu·:::·t
l
pI .:c. i n t i t f
the
statements
th.:..t
any talse
statutes besides
ch mi ght .:..tfect
statutes are
the
the
he
.:..cted
in
or misleading
the
1 j .:c.bi lit::,. ot
Federal
on
The
I~ence).
federal
the-:.e
·:..n d her· eli e d
the misstated statements or erroneous advice.
c·:..n
to
is .:.p l i t
incurred,
i·:.·:. t .:.. ted or· e r· r· on e (jU .::. .:c.d!.) ice gi'. . en,
detend.:..nt
talse
securi ties was attected by
urlljer·
and
damage
the
than
to ·:.t.:..tements. t i l ed
In
statements
til e d
the
is much narrower
i t .:,t.pp1 i es· onl y
this section,
1:::: o·f
.3.n d m i ·:.1 e .:c.d i n 9 .:;. t .:.. t eme n t .:;.
the
.3.nd
lOb-5.
The
1..••.1
th.3.t
ne91 i qence,
the Court
addressing
Pule
a.nd
in Hochtelder· did limit
somewhat,
not
nel~l I gence
tha.n
False
20
Statements Act,
the Federal Mail
Ape r' '=::·0 n rna::." be c om e l i :.. b I
Conspiracy Statute.
Federal
Fraud Act, and the Federal
False Statements Act
€?
U
n de r' the
if he knowinglY and willfully
makes false statements to any department or agency of the
federal
Accountants come under the
government.
jurisdiction of this act when their audi ting reports
accompany financial
statements in reports filed with the
The Federal Mail
u·=::.e 0·; the post.;.l
Fraud Act prohibits the fraudulent
·=::·er·IJ i ce.
Th i·=::..:..ct a.ppl i e~· to .:,.ccclunt.:'.nt·=::.
·.Jhen the::,' cer·t if::.,' f! n·:'.nc i .;:'.l=::.t.;:'.tement=::. th.:'.t thE'·:," knol. . .1 or'
i..
should know are false and will
Li .:'.bi i it::,· under' the Feder·.:'.l
·=::.t.:'.tute.
arises when two or more
a. 9 .;:.. in=::. t
be used in violation of the
Consp i r·a.c::,·· ::::t.:'.tute
individuals agree to commi t a crime
the Unit e d :::: t .;:.. t e·=::· •
Accountants may be prosecuted
for conspiracy to violate any of the four federal
statutes
previously mentioned.
Since statutes vary from state to state,
be pr·:..ctic.;:..l
to
di·=::.cu·=::.~.
them in ,jepth
it would not
in thi·=::. p.:'.per·, but
some statutes that are common to many states should be
men t I onelj.
Most states have enacted statutes that would
m.:'.ke ·;:'.n .;:..ccount.:'.nt cr·imin.;:'.lly· 1 i.;:'.ble for' obt.;:'.inin ,;:) mone::,' tl:;'"
talse pretenses and for wi 1 lfu1 ly falsifyino reports.
:::: tat e a.c c ou n t ·;:'.n c ::." I .:'.I,..)·=::. rl.:'.I.) e be e n e·=::· t .:'.b 1 i ·=::.h edt 0 r' e I.) ok e or'
suspend an accountant's right to practice
i
nun e t h i c .:<.1
c 0"1 du ct.
if he has engaged
Many states have adopted section 101
of the Uniform Securi ties Act which
is very simi lar to SEC
21
rule
10b-5 which
have
also enacted
the
form
1 imi
+.: E'
d
of
I i .:'.b i I i t::.,
'.)er·::,·· of ten
HOI.....Ie
.::.
t .;:.. t e':·
to practice
in
laws provide
,.) e r' '.
rem.::.. j n .::. per' ·::.on a.1 1 ::•., I i .::'.b 1 e
1 i .9. b i I i t y i n I.) 0 I \)
in
c.9ses t",lher'e
r-··10·::.t
the
p.9.·::.t
for
f r' om c i I.) i I
e ·:..c h
;: or'
I i .::'.b
1.)
i I
particular
c.9.se
hi =.
unless
U·::.U.9.11 ::.'
fa'.)or·,
the
doubt,
the
·.Ior· k
t h ·9. t
1...
j
case
of
I I
<.Ii n·::·
1••
l i t ::."
if
Continental
.::'.11
in
The
i ]
I
C
been
j
very
few
I i .9.bl e,
.9.b i I i t -:.'
rim i n .9.·l
i-=:.
t::...
1 i .::'.b i 1
statute.
the
·::·e t
to Clr'eceden ts
e the pI ·9. i n t i f f
·9. cr' imi n.9.1
in
·9.
1 e·9.n·:. '::.1 i (~htl ::..'
e '..! j dence
is proven
c·:,.·::·e
beyond
1..·•.Ii
II
not
.Ii n
1....
a reasonable
accountants are
1.::'.1/..1.
bec.:'.u·::.e
Simon
it
is also referred
was brought
government
they wi Ilful1y orepared false
.::. t .::.. t e"Tle n t ':;.•
have
0 c cur' r' e d
is significant
est.::..bl i ·::.hed ·::'.n
1 i .9.bi I it·:.. ,
which
the
a
United States v.
Vending case,
accountants by
of
1.....lh
.::..ccount i ng !:Ir·ofe·::.·::.i on
This case,
i nth ·9. t
c.::.ses against
feder·.::'.1
.::..udi tor· ... ·::. cr' imi n.::.l
There
1.)·9,r-·:··· a.ccor·d i ng
pl.9.i nt i f f
the
a.u d ito r' .::. h a. -=:. not
Cr' i min .9.1
statute.
criminal
!:,r·o·::.ecuted under'
the
j
defendant's gui 1 t
Most
The
1.....1
ng
hel d cr' imi n.9.11 ::,'
violation
r'equ i r'emen t·::.
each
been
i'::'.bi lib·',
c i·.} i I
involves a wi Ilful I
in ten t
j
fet.·. 1 'y·e·9.r··::.•
.9.udi tor'-=:, ha'.)e
i n'..!ol'..!e
d i f f e r" e n t
to
(I U .::.
personally performs.(14)
t~·
in
r' i
These
corporation.
cor' p or' ·9. t i on •
tot h e
per' ·::·on
'
i
- 1
,_..r' 1m
1 n·:,...
c i
I..) .;:0.
laws permitting CPA firms
a professional
p r' of e '=:.'::. i on .:'.1
he
is described above.(13)
audi tors used
because
to as
against
the
the
i t was alleged
that
or misleading financial
the
defense
that
they were
22
f r· e e
0
f c r· i min .:.. I I i .:.. b iIi t::.-· be c a. u .::;. e the ::,. h.:.. d f
0
I I 0'.·'·.1 e d
generally accepted accounting principles.
The court
convicted the audi tors of willfully making
~
false and
misleading statement and for using the postal
The auditors received a pardon
distribute this statement.
This case
from President Nixon.
service to
imposes a duty upon
accountants to disclose what they Know when they have
r·e·~·::;·on
to bel i e'·.!e th.:..t
extent
i·". oper·a.t i rjl~ for·
management rather than
bu·::.i ne·::·s· ent it::,·· to .:.. m.:..ter· i .0..1
~.
the !:Ir· i '.).o..te benef it of
in the
interest of
its.
its stockholders.
The accounting profession was very concerned about the
decis.icln bec.o..u·::.e
it felt
th.o..t compl ia.nce '. . .Iith I3AAP .o..nd I3AA:::;
should be a strong defense.
Within recent Years,
the number of cases against
accountants has increased and as a result, more precautions
are being taken.
One of the first
should do to avoid litigation
c om 1:' 1 i e·::·
1}•.1
things an accountant
is make sure he Knows and
i t h .0. C C 0 u n tin g.::. t .0. n d a. r· d·::;.
.0<. n d
p r· 0 n 0 u n c em e n t .::..
These ·:..r·e the gu i del i ne·:: of the pr·ofe·=.·=.i on, .o..nd ·:..n
·~.,. . .I.o..r·ene·=··=·
of them
i·::;.
e·=··=·en t i
.~.I
to pr·o',) i de qu.o..1 i t:;.-· ·=·er·'·) i ce
.o..nd r·educe e::q::oo·=.ur·e to 1 it i g.:..t i on.
education
Continuing professional
is an excellent way to keep current on the
ever-changing standards of the accounting profession.
r·'10·=.t .o..ccounta.nt·=..o..nd the AICPA bel i e'·)€' tha.t
professional
if tr,e
standards are followed, an accountant should
not t.e ·=.ubject to 1 i .:..bi 1 i t::... bec.o..u:;:.e cour·t·=. c.o..nnot
impo·=.e
higher standards than the standards of the profession.
To
,jo t hi·:.
I.'-IOU
1d
i fT'P o·:·e I i a.b i 1 it::... e I.} e n i f
the
Lawyers of
everything he ought to do.
.3.C
c ou n t .:'.n t d i ,j
plainti~fs
disagree
li..!i th this bec.:..u·:.e the':," bel iel.}e tha.t the pr·o·fes.sion might
have set standards too low to provide adequate care.
Courts have also ruled, as in Uni ted States v. Simon,
c om CI I i a. n c e
1..'..1
ith
i3AA::::
from being liable.
regulations when
.:.. n d
(3AA P
m.:<. Y' not
CI
that
r' e I) e n t .:.. n .:.. c c 0 u n t .:.. n t
The SEC promulgates new rules and
it feels that accounting standards are not
accountants to comply wi th the standards, but also go
beyond the stan,jards and apply their good judgement.
Cclm p Ii.:.. n c e
li..\
i t h p r' 0 f e':· ';. ion .:.. I .:.. c c 0 u n tin g';, t .:.. n d.:.. r' d .=.
II
i,;.
no guarantee that under particular circumstances an auditor
wi I I
be held blameless.
There
is simply no substitute for
vigilance and good judgement when
b I .:'.me .
II
(
it comes to avoiding
15)
Besides Knowledge of accounting principles and
pronouncements, members of the accounting profession
recommen,j other precautions that should be taKen to avoid
Ii til;J:..tion.
r' e ten t i on .
One of the·;.e
i,;. cl i ent accept.:..nce .:'.nd
Befor'e .:'.ccep t i nl~ .:.. nel. ,.! c I i en t.
to do ·;.uch th i nq·:. ·3.'=· 1001<
::,., 0
i,;, i mpor' t.:'.n t
into the cl i ent···s b.3.cKgr·ound,
find out who the predecessor accountant
':'.bou t
it
the c I i en t' ';. bu';. i ne·:··=·.
~~et.:..ininq
u r' pot e n t i.:.. I I i .:.. b iii t Y' be c·:,. u .:::. Eo
:;'-' 0
IS,
and learn all
·3. cl lent decr·e.3se·:::.
u be c om e m0 r' e f am iii ·3. r'
with his operations as time goes on.
An engagement letter
is a very effective precaution.
24
The
letter'
i,:;:. .;:..ctu.;:..I]::,' .;:.. con tr·,;:,.c tu.;:'.l
.;:..c tu.:;'.l I;.' r'educe
thE'
I t
the E'XPE'C t':'.t i on .:;).;:'.p.
professional
anfi~ay
.;:'.';Ireement
to spE'11
standards.
out
thE'
but most
SCOPE' of
th.;:'.t
can
i,:;:, not r' E' qui r' E' db::.'
accountants USE'
thE'
audit
it
and avoid
misundE'rstandings.
Th r' ou.:;)h
apply
thE'
q u .:;..1 i t /. con t r' 0 1
samE'
hi.:;)h
C!u.;t.1 i 1:::.-' contr'ol
procedures
DthE'r'
are
~
·;t.u d i t clr'
doE' .:. hi·:; bE' .:. t
standards durin.:;) E'ach
c·;t.n
to
engagE'mE'nt.
tiE' m':'.int.:'.inE'd b::,.· ·:.ettin9 up ·:.t.:;'.nd':'.r·d
to follow and propE'rly planning en.:;)a9E'mE'nts.
th i ngs ·:'.r·e
i n l. }ol '')E'd
.;:..l·:.o~
1 ike
qu.;t.1 it::,·, pE'r··:.onnE'l
th.:..t
propE'rly supervisE'd.
AnothE'r way
I;;) r' 01.'0.1 t h
c .;t. n
to 9uard a.:;)ainst
q U .;:.. 1 ; t
>'
·:;u C h.:.. ':;:.
i·:. under··:.t.:;..ffed.
lim i t E' d
e:>::ce·:.·:.i I·}e
hE'avy overtimE' requirE'ments.
.;:..,;;)~.in·:;.t
thE'sE'
looking for
.;:'.u,ji tor'
that
·:;.houldn···t
:ould be
document
.::<.ulji tin,;;) • .;:.nother·
and evaluating
all
de~.dl
his work
i ne
indicators of
open
careful
IY~
be
that
be c ·;:..u .:. E'
the
pr·es.s.ur·e • .:;..nd
guard
gr·o l.'..Ith
c'r·eca.ution~
Among other
management representations,
P E' r' I.} i s ion
~.]loIAling
le.;:'.'-.!e him·:.elf
prevented.
'5U
to b.;t.l.;t.nce
things
Accountants must
thinl;J':' v..Ihile ·:;:.til1
)efen·:.i'.)e
:.
1 i tigation
Growth brin.:;)s on
.:.. n ,j qua l i t y' con t r' 0 I •
d ·:'.m .;:.. 9 E'
f i r'm
An
':'.n
to
h~.ppen.
in'.)ol '·}e-:.
possible
problems.
to .;:..ny 1 i.;:'.bi 1 it::,·,
thin95.
he
should
very cautious about
and consul t
wi th
a partner
or
colle ~..:;)u e of ten.
The
Even
1 .;:...:. t
though
.;:.. n .;:.. c t
i·:
an
p r' e c·:.. uti
auditor
i l l e 9:<. I
0
n p r' e':;:· e n ted her' e
should have
the .::<.ctu.::<.l
i·:;
a good
leg .;:.. 1 .;:.. d I.} ice •
idea of whether
deter·min.;:'.tion
i·:. usu.;:..II::.-·
.-.1:"
£0.-_1
beyond his professional
This is why he should
competence.
consul t a lawyer when questionable acts surface.
a.uthor ·:.ta.ted,"Pr·ec.::<.ut i ona.r·::.·· I e.;:)a.1
medicine, may be essential
. ' I e .;:).::<.1
rl e a.1 t h •.'
Ii
(
.::<.d\) i ce,
One
1 ike· pr·el.)ent i 1·.Ie
to a CPA firm/s continuing
1.'5:..)
Th i·:. p.::<.per· h.::<.·:. e::::p 1 or'ed thE' r·es.pons i b iIi ty .::<.nd
potE'nt i a.1
Ii .::..bi 1 i ty th.3.t a.udi tor":, f.::<.ce
·::<.U d i ted fin ·::<.n c i .~.I
.:. t .: <. t erne n t .:., .::<.1 on':;I
IAI
t h .: <. t
The dr' a.':· t i c
in management fraud in the past twenty years has
been hard on accountants because
The
to
i t h P r' e c ·:<.u t i on s
c a.n be t .::<Y e n to qu ·3T d ·::<.9,::<, in'::, t 1 i t i q.::<. t i on •
increase
r·e~~a.r·d
.Ii th
1....
i ncr'ease
it has resulted in an
in the i r' nel;)1 i ';tence has ca.u·:.ed audi tor"":. to
publ i c I..·.)ho no!/·) th i nk th.::<.t the Ii .::<.bi 1 it::.·· of a.udi tor'':. ,:.houl d
be
j
ncr·ea.':·ed.
Court decisions and regulations by the SEC
tenlj to r'eflect ·::<.n
i
ncr·e·3.,:·e
in Ii ·::<.bi lit::.··.
1.....1
i th mor'e
1 i a.bi lit::.·· pl.::<.ced on them, .::<.ccount·::<.nt·:. need to t.::..ke
precautions to decrease their chances of being sued.
New areas that wi 1 I present new legal
questions in the
near future are compilations and reviews. and forecasts.
When performing a compilation and review,
c om p i 1 e':· fin ·::<T' c 1 .: <. 1 i n for' m.: <. t ion 9 i I.) e n t
and then prepares financial
0
him b :>" the c 1 i e n t
statements.
the statements by performing analytical
discover unusual
the accountant
procedures to
items and determine whether the financial
statements appear to conform to generally accepted
A compilation and review is not an
accounting principles.
qudi t. so the reviewed statements should be marked
Questions almost definitely
-:._r-I-:-e -:._-:- to I/-_d-I€'th€'r- or- not -:..ccount-:..nt·:. ·:..r·€' 1 i .:._bl e for.:. t a. t erne n t ",.. 1. ·.Jh 0
th€'·:.€'
the Y' m i gh t be 1 i ab 1 e to, a.n dun de r' v-Jh a. t
c i r·cum-:.t.:;'.nce-:..
~-he
i i.:'.bi 1 it::,·· of
a.ccount.:'.nt·:- for' fin.:;..nci.:;..1
for·ec.:;..·:.t-::;
is uncertain at the present because an accountant's role
the preparation and release of forecasts is uncertain.
in
It
is not practical for anyone to expect forecasts to have a
high degree of
I;' U
~ccuracy
because th€'Y are basically €'ducated
E: uti n e I.) i t d. b 1 ::'_.,
e ';. '=. e '::..
the r' e
1/•.1
ill
be':, om e p e 01:) l e t h d. t
1.'.Iill e::·::pect d_ h.,:::)her· de9r'ee of ·:;..ccur·.:;..c::,' th.:;..n the::,' ·:.hould.
The problem wi 11 be determinin9 if the auditor has any
i .:;._ tl iii t ':,' 1/..1 hen -:. om eon 12 r- eli e':·
What will
F.: i ':::) h t
n 0 1....) ,
0
n .:;._ for- e c d..:. t .
auditors be able to expect
i t 1 00 k .:::. 1 ike the i r' Ii.:;.. b 1 iii t ;,'
in the future?
1.•'..1
ill
con tin u €' t
I t
increase, unless the values of our society change.
possible that there will
be a great decrease
d.cts, ,ju-:.t .:;...:. ther·e h-:._·:. been .:;.. gr·e.:;..t
/-12 ·:;..r- -:..
fu tur·2.
bu t
don .' t
t h ink t hi·:::. 1/..1 i 1
i·:::.
in fradulent
incr·ea.·:-€'
h.:..ppen
0
in r'ecent
in the ne·:;..r·
Instead, audi tors wi 1 1 have to do somethin,:::) to
i mpr·o'._-'e the i r' cr-ed i b iii t:;.'.
Since ther€' has been some
criticism of the broadness of accounting standards,
the
profession might have to consider modifying them to improve
r-el d.t i on-::· 1••<.li th the publ i c.
I:lo·:::-·:::.i bi 1 it·:"
Th e r- e
i·:. .:;..1
th-:..t the gOI.}er·nment 1,<.Ii 11
':·0
-:;.
.:::
I i I:::)h t
t.:._ke contr-ol
.:..nd be
.-,--;'
L{
the
sale regulator
v..Ih.:'.t h.:'.ppen·:"
their
.:..udi tor":::.
the
I....)i
accounting profession
11
h.?'. . e
auditing procedures and
to a.'.}oi d
than
of
1 i a.bi 1 it:;.',
they can
bear.
bec.::,.u·:::.e
to be
take
the
all
if
'·}er·::,·· ca.r·efu1
possible
the
in
precautions
1 i .:'.bi 1 i t:;.-· m.?:'·· become mor'e
.: 1) Denz i 1 '..(. C:.:'.u·:::.e::.', Dut i es .:'.nd Li .~.bi l i t ! e':::· ot PIJbl i c
A c c 0 u rL t .:.. n t s (D OI;.J ,J 0 n e':::· - I r·I. '.J in, 1 9:3 2 .:.. n d 1 ':;' 7:3) ~ P p. 1 2 - 1 4 .
Oral Histories ot
(2) AccolJn t i nq in Tr·.:'.n·:; i t i on:
(The Ohio
Recent U.S. Experience~ ed. Thomas ,J. Bur'n':::"
:::;t.:'.te Uni'.... er·:::.ib··, 1':;'74), p. 7.
(:3)
George R. Carlett, "Relationship ot Auditing
to De tec t ion ot Fr·.~.ud," Con tempor:.~.r·::,·· Aud i t i nq
Pr' Dt;.l~..lfIS , e d. Hov..Ia.r· d :::; t e t t 1 e r', (Un i '. . e r' sit ::.' ot f<a.n ':::..~.':::.
Printing Service, no cODyright proceedings, 1974), P. 47.
:::;t·~.nd.:'<.r·d·:::.
,:4) FloY',j V.I. l....Iinda.l .:'.nd Rober·t r···~. Cor·le::.··, It-Ie
8ccount i nq F'r·ote·:::.si on.~.l: .. Eth i c':::·. Re·:::.pon:.i bi 1 i t;:,·,
!:-i·:....Q.LUt;:.-·, (Engle l....Jood C1 itt·:::.: Pr·entice-H.~.ll , Inc ••
p. ':;'2.
(5)
Il ..linlj.3.1 ~
p.
.~.nd
l'7'E:O) ,
94
(6) Kent St. Pierre and James Anderson, "An Analysis
ot Aud i t F.:.. i I ur·e·:::. B.:.sed on Documen ted Leg.:.. 1 C':'.·:::.e·:::,," :J.Qur·n.:..l
ot Accountinq. Audi tinq & Finance, Spring 19:32, pp.
( 7)
1••<.1
i
n da.l, p. 10:;:: •
(:3) I..,jind.:..l,
p.
(9) Nancy E. Landahl and L. Lee ::;:;ehmi dt, ,Jr'., "Audi tor'
Re:.pon·:;. i b i I i t;:.-· for' Fr·.~.ud De tec t i on:
D i .:::.p ell i n 9 .~. r·'l;:.·· t h , "
1.....Iom.:..n CPA. ,Ju 1;:.-' 19:31, p. 22.
(10)
La.ndahl~
( 1 1)
C:.:a.1J ":-6' ~'r",
p.
p.
22.
''7'5.
(12) An dr' ev·.1 H. B':'.r·nett ':'.nd F. FultDn Ga.ler·, ":::;cienter'
:::; i nee Hochte I der' ," The CPA ,Jour·n·~.h No'h?mbe r' 19:32, p. 42.
( 14) 1..,.1 i n ,j.:.. 1,
p.
(15)
pp.
1;..Iinda.l,
225.
142-:3.
(16) Charles Chazen, Richard L. Miller, Jr. and
Kenneth I. Solomon. "When the Rules Say:
'See Your
L.:'.I/..I/·er·, ..'" JOldr·n:...1 ot Accoun t.:'.ncy, ,J.:'.nu.:'.r·";.-· 1 '7'::::1, p. t.,O.
B I BL I OGPAF'H"'(
Ac ';;'OU.DJ i rfl~ i n Tr' ·:'.n .::. Lt i on :
Or_·."":....!.l---.:H..:....:...i..=-:;-=.tor' i 12 s clf Pe c 12 n t U_. :::; •
~~ ;':: p 12 r'i 12 n c 12 .!..
Ed. Thorn .:.. s· .J. Bur' n .::. •
The 0 h i 0 :::; t a. t e
Un i '.)er··::. it:;.", 1 -:';'74.
Ba~nett,
And~ew
"Sc i enter'
Novembe~
H. ~ CPA, DBA and F. Ful ton Gale~.
::::i nce Hochfel der·."
The CPEt .Jour·na.l
1982, PP. 40-45.
C •• J~., CPA.
19::::0 .::. ·:'.n d Be -:'-'on d. "
May 1982, pp. 93-104.
Biggs,
:::;he~idan
-I: or'
"Pe~spectives
the
in Audi ting
.J ou r' n .:'.1 gf Ac I; OU.Jl.,t ·:'.n Q~.-\.
"Pelationship of Audi ting Standa~ds to
Catlett, Geo~ge R.
Detection of Fraud."
Contempo~a~y Audi ti"9 P~oblems.
Ed. Howa~d Stettle~.
Unive~si ty of Kansas P~inting
:;:;er·'.)ice.
t"lo cop:,"r·ight.
Pr·oceedinl~-:;. clf
the 1974
A~thu~ Ande~sen Unive~sity of Kansas SYmposium on
~~u d i t
Pro ob 1 em'::· •
c.:'.u '::·12 ::,.,
De n z i 1 ", .• ,
.Jr'.,
DBA,
.JD,
CPA.
1:- j a. b j 1 j tie '::. 0 f Pub 1 i cAe C 0 u n t a. n t -:;. •
1 ';:':32 ·:'.n d
Du tie -:;. ·:.,n d
D 01.....1 .J 0 n e'::· - I r·I. . ,! in,
1 ':;:'73 •
Ch ·:..Z 12 n. Ch ·:'.r· 1 e'::., F.: i c h ·:'.r· d L. t"1 ill e r·. .Jr·. a.n d ~:::e nne t h I .
':;01 omon.
·'I.·.Jhen the Pu i es :::;a.::.":
..' :31212 "'(our' La.'. . .I}.. er·. ,'"
Jour·n·:.·..L . pf Account.;:'.nc';.'·,
.J.:..nlj.;:..r·}·· 19:31, pp. 60-70.
Cr',:,. i g
~ R i ch.:'.r·d L.
"The I ndependen t Pub1 i c Accclun t·:'.n t "'-:;.
::;::01 e in At te·::.t i ng F i n.;:'.nc i .;:..1 For·ec.:.,·::.t·::.• "
Cur·r·eILl.
j='r'cl bl em'::· in the Account i n~·ofe·::,·::.i on.
ed. t,::."
James A. Cashin, MBA. CPA and Do~othea E. Meye~. PhD.
Hemp .::. t e .:'.d:
Hof -:;. t r··;:. Un i '') .• Se r' i e'::· 1:3. 1'.)01.3.
Dunfee, Thomas W. and Irvin N. Gleim.
" Cr' i min .:'.1 L i .:'.b i
:1 f A c c 0 Ij n t a. n t -:;. :
Sou r' c e -:;. .:'. n d Pol i c i e -:;. • "
Am e r' i can
Bu'::, i ne-:;··::· L.::..I..<,1 .Jour-n.~ 3pr' i ng 1':;:'71. PI:I. 1-20.
it··...
Dz i en kO'. ·. I·::.k: i, .John S.
"Accountants...· Li a.bi 1 i t)-·· for'
Compensation and Review Engagements."
l~):: a'::· L .:..1..•..1
t.) i e l....!....!. Ap r' i l l 9::::2,
p p. 75'7'-:::: 19.
e.e
"Independent Audi tor"::, Ga.i n Cour·t I·.)i ctor' i e'::,,"
6,':.-:;.0': i a. t i on .J our' n a.1_1.
.Ju n e 19:32, p. .:;.70.
Arne r' i c ·::'.n
B.;:'.r·
La. n d a. hI. N a. n c :;... E. ·3. n d L. Lee 3 c h mid t, .J r' .
" Au d ito r'
F.:e·:.pon·::.i bi'j it·:..· for' Fr·a.ud Detect i on:
Di ,:.pe1 i ng a.
("1::..' t h . "
1.....IolI!.:..n C:P~..l... .Ju I :;... 1 '?B 1, P p.
22-::::6.
Solomon. Kenneth I~a~ Cha~les Chazen and Richa~d L. Mi 1 1e~ •
•..1 r' •
II C c.m 1:1 i 1 .:;. t ion
·3. n d Pe'.) i e 1.•',.1 :
the::;; .;:.. f e t y. F.:.. c tor' • II
.Jou.c. n ~:.L__Q..:L ..£ic c QU n t~r.!.f..iJ
.Ju 1 ':." 19::::3. p p. 50 -5::;:.
:::; t.
Pie r' r' €'. ~:::e n t ·:'.n d .J ·:..me ':;;. An de r' ·:;;·on •
"An An d.l : •..:; i,:;, of Au ,j i t
.1.Q!:!.f':'!l:~J
F.:..i lur'e':;;' B.:..=.ed on Documente.j Le9d.1 Ca.·::.e·::., II
:=,f Accounti~8udi tinq, .:..nd Fin.:'.nce-L :::;pr'in9 1':;:'::::2,
pp.
22~'-244.
"T'. .·)o .Jur·/· '·.)er·di ct·::. Limi t
to t···le91 i gence ."
p. 12.
Account.:'.nt=.'·
Li B.bi 1 i t::.'
in Pe·::.pect
Flo:;'-'d 1..'..1 • .:'.nd Pober·t t···J. Cor· 1 e::.'.
The Account i nq
E:..c: of e j:.·::.j_on a.l..;__ E t h j c::·. F.:e sp on -:. i b i 1 i t Y..L. d.n d L i .:..to i 1 t : ..' •
\..·..li n d.:.. 1 •
En91 et. ·.)ood C1 i ffs:
pp. 1-456.
1..•..1 i
Pr'ent i ce-H.:..l1.
Inc.,
1';;:'::::0.
n t e r' .::.. A 1 .:.. n ,J.
" A I.", 0 i din.;j t·l:.. 1 p r' .:.. c tic eLi B. t. i 1 i t;:.-· '=; u it·::. .
} ou r' n ·~l_ of_.B.C c ou n t ·;:'.n c.:··, Au 9u s· t 1 ':;:':;:: 1. P p. .::.9-74.
II