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 – May 2024 – L3 – SC – Q5 – Auditor’s Legal Liability

Assess the auditor's legal position and requirements for due care in Globamedia's case, and outline preventive steps.

Globamedia is a company listed on The Nigerian Exchange (NGX) and is a long-established media company. In the last three years, it made some losses, though it is making investment in digital publishing. This investment and the company’s projected sound future prospects have led to a good market rating since it was generally seen that this digital publishing is a leading edge in the media industry. Its investments have been funded through the use of reserves built over many years.

However, a few weeks ago, Globamedia’s shares were suspended, having fallen by more than the stipulated threshold by The Nigerian Exchange Group on rumors that asset values have been significantly overstated and that the company was no longer financially viable. Your firm as the auditors has come under significant criticism and is considered as being negligent.

Required:

a. Evaluate the legal position of your firm. (5 Marks)

b. Discuss the requirements for due care. (5 Marks)

c. Highlight the steps and procedures that the firm could have taken to prevent such a situation from occurring. (5 Marks)

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  • 20 Marks

AAA – May 2018 – L3 – SB – Q3 – Auditor’s Legal Liability

Evaluate necessary IT general and application controls for a fully computerized hotel to ensure data integrity and security.

A new hotel opened for operations on February 1, 2016, in Abuja. The directors at their board meeting in September 2016 selected December as the hotel’s year-end. Also, from the conception of the hotel, it was decided to fully computerize the hotel and its operations. This will make the hotel stand out and attract clientele in the federal capital territory where there are many other hotels with strong competition.

The room doors are electronically operated and use electronic cards for opening. If a customer does not specify his/her duration and has the lock properly programmed, the door will lock at 12 noon, requiring the customer to go back to the reception for access. Furthermore, all accounting and other processes are computerized.

The IT company that handled the computerization agreed to leave a member of staff who will train the hotel’s staff for three months and ensure that the system operates efficiently. Management believes that the staff will familiarize themselves with the system within that period. The server handles all doors, accounting processes including billing, and the determination of room occupancy rate on a daily basis. Various units of the hotel have desktop units which key employees use in both ordering and communication between themselves. The server is located next to the operations manager’s office, who is responsible for overseeing it in addition to other duties.

The last quarterly report on the hotel activities was not consistent with expectations, and the occupancy rate did not match turnover. The management of the hotel approached your firm of chartered accountants to be engaged as auditors to the hotel. Your review and interactions as the leader of the audit team revealed the information disclosed above.

Required:

Evaluate and apply the relevant general and application controls necessary to be installed in the hotel’s information environment.
(Total 20 Marks)

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  • 20 Marks

AAA – May 2018 – L3 – SB – Q2 – Auditor’s Legal Liability

Discuss the expectation gap, strategies to address it, and the role of professional skepticism in auditing financial statements.

Audit firms have been castigated over the years by the public whenever their clients have any financial or operational crises. The potential liability of auditors has also become an important topic in recent years due to the growing complexity of the business and legal environment and an increase in legal actions against auditors. One reason put forward to explain the high number of legal actions against auditors is the “expectation gap.”

Required:

a) Explain “expectation gap” and describe its THREE main elements. (5 Marks)

b) Discuss the strategies that could assist in closing the expectation gap. (10 Marks)

c) i. Explain briefly the concept of professional skepticism. (2 Marks)
ii. Evaluate the importance of professional skepticism in the audit of financial statements. (3 Marks)

(Total 20 Marks)

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