LEGAL LIABILITY
After studying this chapter, you should be able to
5-1 Understand the litigious environment in which CPAs
practice.
5-2 Explain why the failure of financial statement users to differentiate among business failure, audit failure, and audit risk has resulted in lawsuits.
5-3 Use the primary legal concepts and terms concerning accountants’ liability as a basis for studying legal liability of auditors.
5-4 Describe accountants’ liability to clients and related defenses.
5-5 Describe accountants’ liability to third parties under common law and related defenses.
5-6 Describe accountants’ civil liability under the federal securities laws and related defenses.
5-7 Specify what constitutes criminal liability for accountants.
5-8 Describe how the profession and individual CPAs can reduce the threat of litigation.