Ernst & Young was the auditing firm of HealthSouth from 1984 to 2002. Due to financial hardship Healthshore grew desperate and developed a scheme to deceive not only shareholders but Ernst and Young. Inevitably whistleblowers came forth and a lawsuit ensued. The shareholder’s lawsuit against Ernst and Young never went to trial. However, the lawsuit against Healthshore ended in settlement. Though a travesty to the shareholders and employees not involved with the fraud, this fraudulent activity was necessary for it forced the SEC to hinder these types of events to occur in the future. There may still be cases similar to HealthShore going on today had it not been for the Sarbanes Oxley act enforcing stricter requirements for auditing firms.
1.) Ordinary negligence is defined as the absence of reasonable care that can be expected of a person in a set of circumstances. For an auditor, it is what another component auditor would have done given the same scenario. Gross negligence is a step further than ordinary negligence and is that is absence of even slight care that can be expected of an independent, competent auditor. Some states do not distinguish the difference between both of these term but the main difference is ordinary negligence is an accidently mistake and the gross negligence is a mistake caused by a reckless act or decision.
Constructive negligence is a more extreme negligence than gross negligence. This negligence is unusual but was committed without intend to deceive or harm. Negligence of this magnitude occurs when an inadequate audit was done but an opinion was issued anyway. For instance, if HealthSouth employees kept a factious account that was above the auditor’s materiality threshold but did not test this account...
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...ds being committed so they were not a prudent person in performing due diligence in their audit.
3c. The auditors did their due diligence in that they questioned internal controls and found them to be acceptable if it were not for the deliberate collusion among management they would have been able to detect the fraud and therefor i would not be able to find them negligent in there assertion of the effectiveness of internal controls.
4. A disclaimer of opinion should be issued if the scope of the audit is limited because of management hindrance uness the evaluation during preplanning established that the section of the business being hindered was immaterial in respect to the overall fair presentation of the financial statements in that case if the audit was performed in accordance ewith GAAS the auaidotr should not be considered negligent if a fraud had occurred.
Andrea may decide not to inform the limited partners about the misrepresentation of Skyline Views’s financial statements; to avoid conflict, this decision permits Ed to deceive the company and limited partners. In addition, by deciding not to inform the limited partners of Ed’s deceit, Andrea would be disregarding the American Institute of Certified Public Accountants Code of Professional Conduct in her being unreliable, dishonest and deceitful. Andrea has the responsibility of protecting her client, which involves encouraging the correction of financial statements in order to prevent suspicion during audits that could lead to fines and imprisonment. Andrea’s second option is to inform the limited partners about how misrepresentations of Skyline Views’s financial statements are permitting Ed to claim a higher management fee; this decision will fulfill her due diligence obligation to the limited partners while maintaining her integrity as a certified public accountant in supporting the American Institute of Certified Public Accountants Code of Professional Conduct.
The risk that the auditor or audit firm will suffer harm after the audit is completed, even though the audit report was correct,
The first component of the four D’s of negligence is duty. The dentist owed a duty of care to every one of his patients. Duty of care is a legal obligation a health care worker, in this case, the dentist, owes to their patient and, at times,...
However, circumstances changed “in cases in which an auditor fails to establish that applicable auditing standards were followed” (Zack 2011). Since WoolEx Mills’ auditors failed to properly identify the fraud risks that caused the material misstatements, they would be in breach of professional duty to shareholders. Litigation would mostly be pursued by WoolEx Mills’ shareholders, WoolEx Mills, third parties impacted by the auditors services, creditors, and other parties who rely on WoolEx Mills financial statements. Each plaintiff would have the right to sue the auditors for their negligence in performing the audit with due diligence. To prove a breach of contract, WoolEx Mills would need to provide the engagement letter as proof that the auditors did not peform the duties agreed upon. Additionally, WoolEx Mills’ auditors would be charged with either gross or ordinary negligence based on their deviation from proper auditing standards. Since the auditors failed to test the company’s internal controls, they would be found guilty of gross negligence. The auditors would be guilty of ordinary negligence if they forgot to complete a section of the vertical analysis of the Income Statement (Zack 2011) (Krishnan & Shah
The second element of the negligence is the breach of the duty of due care. By definition, “Any act that fails to meet a standard of the person’s duty of due care toward others” (Mayer et al,. 2014, p. 161). George breaches the duty of care because he did not set the parking brake, which then scraped a Prius that is driving up the road, then crosses the 6th Avenue service drive, breaks through the fencing and smashes into the light rail
... and settled the charges by paying $50 million. Although charges and wrongdoings of Deloitte auditors were never proven in court, it is quite apparent that Deloitte indeed had its share of guilt in Adelphia’s fraud. In particular, Deloitte failed to properly investigate the relationship between Rigas family and Adelphia Communications Corporation, thus providing way for fraud to take place. Moreover, Deloitte’s independence in this engagement is questionable, considering Deloitte has been the external auditor of Adelphia for over 15 years. Therefore, auditors, as crucial players and gatekeepers of any company’s financial reporting, should maintain unsurpassed independence, in fact and in appearance, as much as possible. Moreover, as effective and responsible professionals, auditors should always maintain their integrity despite any management or executive pressure.
With every business activity come opportunities for fraudulent behavior which leads to a greater demand for auditors with unscathed ethics. Nowadays, auditors are faced with a multitude of ethical issues, and it is even more problematic when the auditors fail to adhere to the standards of professional conducts as prescribed by the American Institute of Certified Public Accountants (AICPA). The objective of this paper is to analyze the auditors’ compliance with the code of professional conduct in the way it relates to the effectiveness of their audits.
Negligence, as defined in Pearson’s Business Law in Canada, is an unintentional careless act or omission that causes injury to another. Negligence consists of four parts, of which the plaintiff has to prove to be able to have a successful lawsuit and potentially obtain compensation. First there is a duty of care: Who is one responsible for? Secondly there is breach of standard of care: What did the defendant do that was careless? Thirdly there is causation: Did the alleged careless act actually cause the harm? Fourthly there is damage: Did the plaintiff suffer a compensable type of harm as a result of the alleged negligent act? Therefore, the cause of action for Helen Happy’s lawsuit will be negligence, and she will be suing the warden of the Peace River Correctional Centre, attributable to vicarious liability. As well as, there will be a partial defense (shared blame) between the warden and the two employees, Ike Inkster and Melvin Melrose; whom where driving the standard Correction’s van.
It is known that the advisee will be acting upon the advice for that purpose without independent inquiry
The Act allows negligence as the sole ground unlike common law which required the claimant to establish ‘fraud’ even if negligence existed. It is believed that the ‘d...
In the reading of Graham Law Review, discusses the transition from negligence to strict liability and how strict liability is a “superior alternative to negligence.” Strict liability is a better alternative than negligence because business enterprises should be “responsible for losses from products being distributed (Cited in Schwartz Law Review Pg.1 and Priest Law Review Pg2).” The concurrence facilitated the expansion of tort liability to cover other injuries caused by manufacturers. In arguing that strict liability would provide desirable insurance (Escola Tort Story Pg.4).
Negligence is a concept that was passed from Great Britain to the United States. It arose out of common law, which is made up of court decisions that considered whether a defendant had an obligation to act with greater care. It is conduct which falls below the standard established by law for the protection of others against unreasonable risk of harm and involves a failure to fulfill a duty that causes injury to another. Many torts depend on whether there was intent but negligence does not. Negligence looks to see whether the person had a duty to act with care. It emphasizes the need for people to act reasonably in society. This is important because accidents will happen. Negligence helps the law establish whether these accidents could have been avoided, if there was a breach of duty to act reasonably, and if that breach was the cause of injury to that person. By focusing on the conduct rather than the intent of the defendant, the tort of negligence reflects society’s desire to
Negligence is defined as “the failure to act in a reasonable way as a health care clinician” 1, encompassing failure to follow up, to refer when necessary, to disclose necessary information to a patient, and to give necessary care.2 A clinician’s negligence may result in malpractice, which is “the failure of a professional to exercise that degree of skill and learning commonly applied by the average, prudent, reputable member of the profession.” 2 A malpractice suit must prove four factors: a duty of care owed to the injured party within an established patient-nurse relationship, a breached accepted standard of care, damage or sustained injury to the patient, and demonstrated direct causation by the clinician.3 As an APRN, I will avoid the
Moreover, the auditors had looked out the attitude or rationalisation of the company to justify the fraudulent action. The top management may behalf on their own interest but not the behalf of shareholders to maintain or raise the stock price of the company. In Cendant case, the CUC’s management allegedly inflated earnings by recording increasing revenue and reducing expense to meet expectation.
The Auditor-Firm Conflict of Interests: Its Implications for Independence: A Reply. By: Goldman, Arieh; Barlev, Benzion. Accounting Review, Oct75, Vol. 50 Issue 4, p857-859, 3p