An audit client loses a lawsuit and the judgment is for an amount in excess of the contingent liability the client had recorded in the audited financial statements. The auditor, using the typical degree of due care as other members of the profession, determined that the amount of contingent liability recorded by the client in the financial statements for the pending lawsuit was reasonable, given the facts at the time of the audit. This judgment by the auditor is likely to result in

Question

Quizplus · Accepted Answer

The auditor exercised due care in determining the reasonableness of the contingent liability recorded by the client, given the facts at the time of the audit. Therefore, no legal action should be taken against the auditor or accounting firm.

An Audit Client Loses a Lawsuit and the Judgment Is