Management failed to put in a system of adequate internal controls. The public accounting firm uncovered the weakness, but did not report it to the Board members of the company. What kind of liability, if any, would the auditors be exposed to?

Question

Quizplus · Accepted Answer

The auditors could be exposed to liability for breach of contract because they failed to report the weakness in internal controls, which is one of their responsibilities as auditors. They could also be exposed to liability for contributory negligence because they did not fulfill their duty to report the weakness to the Board members, which could have prevented or mitigated losses to the company. Therefore, both options A and B apply.

Management Failed to Put in a System of Adequate Internal