Topic: Auditor’s Legal Liability

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q6 – Auditor’s Legal Liability

Discuss criminal charges against accountants, reasons auditors prefer out-of-court settlements, and the disadvantages of such settlements.

Auditors’ liabilities may arise under common law and statute. Statutory liability may be civil or criminal. Professional accountants are increasingly guiding against incidences of litigation that may impact negatively on their work.

You are required to:

(a) Outline SIX ways through which accountants may be charged for criminal offenses. (6 Marks)

(b) Explain SIX reasons why auditors are willing to settle legal matters with their clients out of court. (6 Marks)

(c) State THREE disadvantages of an out-of-court settlement. (3 Marks)

(Total: 15 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q1 – Auditor’s Legal Liability

Explores the legal defence for auditors against damages claimed by clients.

1. An auditor’s legal defence that the damages claimed by the client were not brought about by any act of his is …………………………..

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q17 – Auditor’s Legal Liability

This question examines the best defence an audit firm can present when accused of failing to identify substandard and obsolete inventory.

Yakubu Chukwu & Co was sued by one of its clients who alleged that the firm failed to satisfy the auditing standards in identifying substandard and obsolete inventory while attending end-of-year stock take. Which of the following is the firm’s best defence?
A. It is quite impossible to expect the firm to identify substandard and obsolete inventory due to the special nature of the inventory
B. Yakubu Chukwu & Co has to prove that its audit has been carried out with reasonable skill, care, and diligence
C. Auditing standards are not legislated, therefore, the client has no right to sue the firm
D. The contributory negligence of the client
E. Identification of substandard and obsolete stock requires an expert opinion

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q7 – Auditor’s Legal Liability

This question tests understanding of actions that could result in criminal liability for an auditor.

An auditor will be criminally liable if he engages in the following, EXCEPT
A. Aiding a client to devise or execute crime
B. Agreeing with a client to conceal or destroy vital evidence
C. Advising a client to commit a criminal offence
D. Advising a client on steps to minimize tax liability taking advantage of the law
E. Assisting the client to commit an offence relating to money laundering

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  • 15 Marks

AAA – Nov 2012 – L3 – SB – Q6 – Auditor’s Legal Liability

This question discusses auditors' responsibilities to shareholders and stakeholders, steps to minimize liability risks, and actions in distressed companies.

In a recent seminar you attended, it was explained that although auditors can incur civil liability under various statutes, it is far more likely that they will incur liability for negligence under common law. The paper presenter mentioned cases against auditors which were in this area. You also learnt that auditors must be fully aware of the extent of their responsibilities, together with steps they must take to minimize the danger claims arising from professional negligence.

Required:
a. Discuss the extent of auditors’ responsibilities to shareholders and other stakeholders during the course of their normal professional engagement. (8 Marks)

b. Outline FIVE steps that audit firms can take to minimize the danger of claims against them. (5 Marks)

c. Itemize TWO steps that must be taken to minimize the danger of claims when the company is deemed to have been distressed. (2 Marks)
(Total 15 Marks)

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  • 1 Marks

AAA – Nov 2012 – L3 – AII – Q19 – Auditor’s Legal Liability

Identifies the conditions under which auditors can have a lien on the client's books and records.

For the auditors to have a right of lien on the books and records of the client, they must have obtained ………… by …………… means.

 

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  • 1 Marks

AAA – Nov 2012 – L3 – AII – Q12 – Auditor’s Legal Liability

Identifies the type of creditors given priority in payment during a liquidation process.

The creditors given priority payment during a liquidation process are known as …………………. creditors.

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  • 1 Marks

AAA – Nov 2012 – L3 – SA – Q18 – Auditor’s Legal Liability

Identifying debtor categories exempt from bankruptcy declaration under Nigerian law.

The following categories of debtors may be declared bankrupt (according to Bankruptcy Law in Nigeria) EXCEPT:

A. A debtor owing a liquidated sum of at least N2,000 (Two Thousand Naira only).
B. A debtor who has committed an act of bankruptcy within 3 months before presentation of bankruptcy petition.
C. Any debtor domiciled in Nigeria or who has carried on business in Nigeria by means of an agent or a manager.
D. A debtor that makes any conveyance or transfer of his property or any part thereof if he were adjudged bankrupt.
E. A debtor who transacts business in Nigeria and is able to meet his obligation as at when they fall due.

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  • 1 Marks

AAA – Nov 2011 – L3 – SAII – Q7 – Auditor’s Legal Liability

Conditions under which an auditor owes a duty of care to third parties.

In principle, the auditor does not owe a duty of care to a third party. However, it has been held in decided cases that the auditor owes a third party a duty of care under the……………………………

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  • 1 Marks

AAA – Nov 2011 – L3 – SA – Q1 – Auditor’s Legal Liability

Identifies the IT automation service that alleviates document-based process management.

A technology that takes away the problems associated with managing Information Technology Systems and can help automate document-based processes, so that customers can focus on growing and knowing their businesses, is known as:

  • A. Hosted services
  • B. Bureau services
  • C. Amazon services
  • D. Desktop services
  • E. Office assistance services

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q6 – Auditor’s Legal Liability

Discuss criminal charges against accountants, reasons auditors prefer out-of-court settlements, and the disadvantages of such settlements.

Auditors’ liabilities may arise under common law and statute. Statutory liability may be civil or criminal. Professional accountants are increasingly guiding against incidences of litigation that may impact negatively on their work.

You are required to:

(a) Outline SIX ways through which accountants may be charged for criminal offenses. (6 Marks)

(b) Explain SIX reasons why auditors are willing to settle legal matters with their clients out of court. (6 Marks)

(c) State THREE disadvantages of an out-of-court settlement. (3 Marks)

(Total: 15 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q1 – Auditor’s Legal Liability

Explores the legal defence for auditors against damages claimed by clients.

1. An auditor’s legal defence that the damages claimed by the client were not brought about by any act of his is …………………………..

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q17 – Auditor’s Legal Liability

This question examines the best defence an audit firm can present when accused of failing to identify substandard and obsolete inventory.

Yakubu Chukwu & Co was sued by one of its clients who alleged that the firm failed to satisfy the auditing standards in identifying substandard and obsolete inventory while attending end-of-year stock take. Which of the following is the firm’s best defence?
A. It is quite impossible to expect the firm to identify substandard and obsolete inventory due to the special nature of the inventory
B. Yakubu Chukwu & Co has to prove that its audit has been carried out with reasonable skill, care, and diligence
C. Auditing standards are not legislated, therefore, the client has no right to sue the firm
D. The contributory negligence of the client
E. Identification of substandard and obsolete stock requires an expert opinion

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q7 – Auditor’s Legal Liability

This question tests understanding of actions that could result in criminal liability for an auditor.

An auditor will be criminally liable if he engages in the following, EXCEPT
A. Aiding a client to devise or execute crime
B. Agreeing with a client to conceal or destroy vital evidence
C. Advising a client to commit a criminal offence
D. Advising a client on steps to minimize tax liability taking advantage of the law
E. Assisting the client to commit an offence relating to money laundering

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  • 15 Marks

AAA – Nov 2012 – L3 – SB – Q6 – Auditor’s Legal Liability

This question discusses auditors' responsibilities to shareholders and stakeholders, steps to minimize liability risks, and actions in distressed companies.

In a recent seminar you attended, it was explained that although auditors can incur civil liability under various statutes, it is far more likely that they will incur liability for negligence under common law. The paper presenter mentioned cases against auditors which were in this area. You also learnt that auditors must be fully aware of the extent of their responsibilities, together with steps they must take to minimize the danger claims arising from professional negligence.

Required:
a. Discuss the extent of auditors’ responsibilities to shareholders and other stakeholders during the course of their normal professional engagement. (8 Marks)

b. Outline FIVE steps that audit firms can take to minimize the danger of claims against them. (5 Marks)

c. Itemize TWO steps that must be taken to minimize the danger of claims when the company is deemed to have been distressed. (2 Marks)
(Total 15 Marks)

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  • 1 Marks

AAA – Nov 2012 – L3 – AII – Q19 – Auditor’s Legal Liability

Identifies the conditions under which auditors can have a lien on the client's books and records.

For the auditors to have a right of lien on the books and records of the client, they must have obtained ………… by …………… means.

 

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  • 1 Marks

AAA – Nov 2012 – L3 – AII – Q12 – Auditor’s Legal Liability

Identifies the type of creditors given priority in payment during a liquidation process.

The creditors given priority payment during a liquidation process are known as …………………. creditors.

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  • 1 Marks

AAA – Nov 2012 – L3 – SA – Q18 – Auditor’s Legal Liability

Identifying debtor categories exempt from bankruptcy declaration under Nigerian law.

The following categories of debtors may be declared bankrupt (according to Bankruptcy Law in Nigeria) EXCEPT:

A. A debtor owing a liquidated sum of at least N2,000 (Two Thousand Naira only).
B. A debtor who has committed an act of bankruptcy within 3 months before presentation of bankruptcy petition.
C. Any debtor domiciled in Nigeria or who has carried on business in Nigeria by means of an agent or a manager.
D. A debtor that makes any conveyance or transfer of his property or any part thereof if he were adjudged bankrupt.
E. A debtor who transacts business in Nigeria and is able to meet his obligation as at when they fall due.

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  • 1 Marks

AAA – Nov 2011 – L3 – SAII – Q7 – Auditor’s Legal Liability

Conditions under which an auditor owes a duty of care to third parties.

In principle, the auditor does not owe a duty of care to a third party. However, it has been held in decided cases that the auditor owes a third party a duty of care under the……………………………

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  • 1 Marks

AAA – Nov 2011 – L3 – SA – Q1 – Auditor’s Legal Liability

Identifies the IT automation service that alleviates document-based process management.

A technology that takes away the problems associated with managing Information Technology Systems and can help automate document-based processes, so that customers can focus on growing and knowing their businesses, is known as:

  • A. Hosted services
  • B. Bureau services
  • C. Amazon services
  • D. Desktop services
  • E. Office assistance services

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