Absence of causal connection
an auditor's legal defense under which the auditor contends that the damages claimed by the client were not brought about by any act of the auditor
audit failure
a situation in which the auditor issues an incorrect audit opinion as the result of an underlying failure to comply with the requirements of auditing standards
audit risk
the risk that the auditor will conclude after conducting an adequate audit that the financial statements are fairly stated and an unmodified opinion can therefore be issued when, in fact, they are materially misstated
business failure
the situation when a business is unable to repay its lenders or meet the expectations of its investors because of economic or business conditions
contributory negligence
an auditor's legal defense when the auditor claims that the client failed to perform certain obligations and that it is the client's failure to perform those obligations that brought about the claimed damages
criminal liability for accountants
defrauding a person through knowing involvement with false financial statements
Foreign Corrupt Policies Act of 1977
a federal statute that makes it illegal to offer a bribe to an official of a foreign country for the purpose of exerting influence and obtaining or retaining business and that requires U.S. companies to maintain reasonably complete and accurate records an
forseeable users
an unlimited class of users that the auditor should have reasonably been able to foresee as being likely users of financial statements
forseen users
members of a limited class of users who the auditor is aware will rely on the financial statements
lack of duty to perform
an auditor's legal defense under which the auditor claims that no contract existed with the client; therefore, no duty existed to perform the disputed service
legal liability
the professional's obligation under law to provide a reasonable level of care while performing work for those served
nonnegligent performance
an auditor's legal defense under which the auditor claims that the audit was performed in accordance with auditing standards
Private Securities Litigation Reform Act of 1995
a federal law passed in 1995 that significantly reduced potential damages in securities-related litigation
prudent person concept
the legal concept that a person has a duty to exercise reasonable care and diligence in the performance of obligations to another
scienter
commission of an act with knowledge or intent to deceive
Securities Act of 1933
a federal statute dealing with companies that register and sell securities to the public; under the statute, third parties who are original purchasers of securities may recover damages from the auditor if the financial statements are misstated, unless the
Securities Exchange Act of 1934
a federal statute dealing with companies that trade securities on national and over-the-counter exchanges; auditors are involved because the annual reporting requirements include audited financial statements
Ultramares Doctrine
a common-law approach to third-party liability, established in 1931 in the case of Ultramares Corporation vs. Touche, in which ordinary negligence is insufficient for liability to third parties because of the lack of privity of contract between the third