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Chapter 5 1. State several factors that have affected the incidence of lawsuits against CPAs in recent years. a. “Growing awareness of the responsibilities of public accountants by the users of financial statements. b. An increased consciousness on the part of the SEC for its responsibility for protecting investors’ interested c. The complexity of auditing and accounting functions caused by the increasing size of businesses, the globalization of business, and the complexities of business operations d. The tendency of society to accept lawsuits by injured parties against anyone who might be able to provide compensation, regardless of who was at fault, coupled with the joint and several liability doctrine e. Large civil court judgments against CPA firms awarded in a few cases, encouraging attorneys to provide legal services on a contingent-fee basis, which offers the injured party a potential gain when the suit is successful, but minimal losses when it is not. f. Many CPA firms being willing to settle legal problems out of court in an attempt to avoid costly legal fees and adverse publicity, rather than pursuing resolution through the judicial process g. The difficulty judges and jurors have understanding and interpreting technical accounting and auditing matters.” (Arens, Elder, & Beasley, 2012) 10. Compare and contrast traditional auditors’ legal responsibilities to clients and third-party users under common law. How has that law changed in recent years? a. Liability to clients range from issues concerning employee fraud to breach of confidentiality. The CPA is required to provide a level of due care to the client. If due care has not been given or confidentiality has been breached, the CPA and its firm can be held liable. The CPA is held liable to third-parties, if the third-party can experiences a

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