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Assuming Legal action By Equity Investors in Phar-Mor Case 4.6 against the Auditor Under the Securities...

Assuming Legal action By Equity Investors in Phar-Mor Case 4.6 against the Auditor Under the Securities act of 1933, what would be the basis of the claim? what would be the defense by the Auditor?

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Answer #1

Action will be pursued by the client, not the auditor. The clients give the information to the auditor. They also work on the basis of financial statements. Negligence involves independent auditors. It is in violation of the legal duty to exercise a degree of care. If auditors do not exercise a degree of care and audit following the standards, and, procedures; it is legally courted as the fraud. Negligence is lack of care, fraud is a misrepresentation. Securities Act imposes liability on CPAs for audit relating to financial statements. The standards and statutes differ.

The standards for liability provides a means of recovery.

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