Auditor Liability

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Limiting
recovery of loss has a detrimental effect on those which are harmed by
alleged negligence. The cost of liability is reasonable when compared to
total revenues, and in light of a CPA's public responsibility. Indemnity
insurance spreads risk in the aggregate therefore removing the element of
risk at the firm level. The threat of litigation provides public
accountants with a deterrent against negligent work. Finally, the results
of lawsuits cause the profession itself to implement new standards.
(Bolinger p.54)
The AICPA and its supporters have developed their argument based
on continued liability's likely effect on the profession as well as an
economic argument. The arguments in favor of liability reform include the
effect of continued liability on the availability of CPA services. The
likelihood of fee increases resulting from liability risk. The threat of
the inability of public accounting to obtain and retain qualified
individuals. (Bolinger p.56) Finally, the ...

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deemed credit-worthy ultimately failed, and claim
resulted by the third party against the bank issuing the certificate.
(Minnis p.9) The finding in the The notion that all parties remotely
affected by a given action (or lack thereof) deserve compensation for
their loss is one which is embraced by the legal community-- and
rightfully so, after all a drastic reduction in the number of claims filed
would result otherwise. The argument made in its favor is that all those
harmed by negligent activity deserve compensation. Idealistically this is
true, and theoretically anyone who makes a decision based entirely on the
results of an auditor's report, and suffers a loss due to negligence ...

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