REVIEW CHAPTER 7 : AUDIT ISSUE S AND LEGAL LIABILITIES (PSP_DAT5CJune2020)
GROUP 7 : AUDIT ISSUE LEGAL LIABILITIES
GROUP MEMBERS :
AINAA MASTURA BINTI SABRI (10DAT18F1054)
MUHAMMAD ASYRAAF BIN AHMAD FARIDI (10DAT18F1123)
THIBBAH MURUGAN (10DAT18F1095)
PRIYA SHANTINI A/P RAMIS (10DAT18F1109)
THARSHINI A/P SIVARAMAN (10DAT18F1113)
MALATHI MURUGAN (10DAT18F2063)
INTRODUCTION
Legal liabilityis a term applied to being legally responsible for a situation, and is often associated with a subcontract, especially if the terms of that contract are not fulfilled.
In Malaysia, legal action can be taken against an auditor for violating the Securities Commission Act 2003 or the Companies Act 1965.
Under the Companies Act 1965 - Section 46 - An auditor as an expert who authorities and causes the issue of prospectus is liable to pay compensation to person who purchases share or debentures on the faith of the prospectus for any loss sustained by reason of untrue statements or willful non-disclosure for any matter which is material.
Under the Securities Commission Act 2003 - Section 57 - any third party who purchased securities described in the registration statement may sure the auditors for material misrepresentations or omission in the audited financial statements included in the registration statement
Additional notes :
a) Download our slide about audit issue and legal liability
b) youtube :
QUESTIONS
GROUP 1 : What are the methods can be used by accountant and auditor to minimize their potential liability?
GROUP 2 : What are three things have to prove to court by parties who bring a case against an auditor?
GROUP 3 : Liability that affect public accounting firm is deferred from laws. What type law that are?
GROUP 4 : Definition of audit liability.
GROUP 5 : Explain differences between fraud and errors.
GROUP 6 : Explain the ‘prudent man’ concept.
GROUP 8 : List parties are considered agents.
THANK YOU AND GOODLUCK!
Comments
The distinguishing factor between fraud and error is whether the underlying action that results
in the misstatement in the financial statements is intentional or unintentional. Unlike error,
fraud is intentional and usually involves deliberate concealment of the facts. Error refers to
an unintentional misstatement in the financial statements, including the omission of an
amount or disclosure.
a rule giving discretion to a fiduciary and especially a trustee to manage another's affairs and invest another's money with such skill and care as a person of ordinary prudence and intelligence would use in managing his or her own affairs or investments
Get rid of high risk clients and troublemakers. Continuing to serve clients that are risky, that require constant hand-holding, that are uncooperative or that argue over fees limits productivity of CPA firm personnel and often creates a “crisis-oriented” culture. It also builds a client portfolio of less-than-quality clients and increases the likelihood of lawsuit!
An auditors liability or responsibility is to provide reasonable assurance that a reporting entity’s financial statements are free of material misstatements, whether due to error or fraud. An auditor (or audit firm) that fails to detect a material misstatement in a client’s financial statements will oftentimes find him or herself in the position of having to defend against accountant’s liability for negligence,
or worse.
Fraud is a delibrate act done by a cunning person to mislead people about the truth and seriously hurt the intended person or organisation, which if caught, could end up in jail.
Errors are made unknowingly by anyone who lacks knowledge or due to oversight on the part of the individual, which if caught, can be corrected by taking appropriate measures to prevent it from happening again.
1) A false representation by the accountant
2) Knowledge or belief by the accountant that the representation was false.
3) That the accountant intended to induce the third party to rely on the false representation.