The concept of not holding an auditor legally responsible for knowing misrepresentations in the financial statements by management is called:
A)Disgorgement
B)Tax avoidance
C)Indemnification
D)Restricted liability

Question

Quizplus · Accepted Answer

The concept of indemnification refers to the legal agreement between the auditor and their client, where the client agrees to protect and compensate the auditor from any losses or damages resulting from third-party claims. This includes legal claims against the auditor for not detecting misrepresentations or fraud in the financial statements. The auditor is not held legally responsible for knowing misrepresentations by management, as it is impossible for the auditor to detect all fraud or errors. However, the auditor is still responsible for conducting an audit in accordance with auditing standards and expressing an opinion on the financial statements. Disgorgement is the practice of returning ill-gotten gains or profits, and tax avoidance refers to legal practices of reducing tax liabilities. Restricted liability is not a commonly used term in accounting or auditing.

The Concept of Not Holding an Auditor Legally Responsible for Knowing