As a consequence of his failure to adhere to generally accepted auditing standards in the course of his examination of the Lamp Corp., Harrison, CPA, did not detect the embezzlement of a material amount of funds by the company's controller. As a matter of common law, to what extent would Harrison be liable to the Lamp Corp. for losses attributable to the theft?

Question

Quizplus · Accepted Answer

As a CPA, Harrison had a duty to adhere to generally accepted auditing standards, which include understanding the client's internal controls and assessing the risk of fraud. By failing to detect the embezzlement, Harrison breached this duty and was negligent. Lamp Corp. can therefore seek damages from Harrison for their losses attributable to the embezzlement. Privity of contract is not a requirement for liability in cases of professional negligence. While gross negligence may increase the damages awarded, it is not necessary to prove in order for Harrison to be liable.

As a Consequence of His Failure to Adhere to Generally