1.

) Discuss three major factors that have contributed to the recent increase in the number
of lawsuits against auditors and the size of awards to plaintiffs.
Answer:
a. Growing awareness by financial statement users - Growing understanding among
readers of financial statements of the obligations of public accounts
b. Increased consciousness of the SEC - Greater awareness of the Securities and
Exchange Commission's duty to safeguard investors
c. Complexity in business drives complexity in auditing and accounting functions -
Due to the growing scale of firms, their internationalization, and the complexity of
their operations and financial transactions, auditing and accounting functions have
become more and more complicated.

2.) Discuss each of the four defenses a CPA firm can normally use when facing legal
claims by clients. Which of these defenses is ordinarily not available against third-
party suits?
Answer:
a. Lack of Duty to Perform – The CPA company may contend that there was no legal
responsibility for them to provide the requested services since they had no duty of
care to the customer. If the CPA company can demonstrate that they did not have a
professional connection with the client or that the services given were beyond the
parameters of the predetermined agreement, this argument may succeed.
b. Nonnegligent Performance – The CPA company may contend that they didn't fail in
their obligation to the customer. For this defense, the CPA firm must demonstrate that
it used the same degree of competence and care as would be reasonable and prudent
of a CPA in the identical situation.
c. Contributory negligence – The CPA company may contend that the client's
carelessness played a part in the harm they sustained. To successfully assert this
defense, the CPA firm must demonstrate how the client's acts or inactions caused the
losses and that the client should be held partially accountable.
d. Absence of Casual Connection - The CPA firm may contend that they were not
directly responsible for the client's losses. This argument necessitates the CPA
company to demonstrate that the client's damages were not brought on by their
carelessness or duty violation.

3.) Discuss the sanctions the Securities and Exchange Commission can impose on
auditors.

Answer: Some of these sanctions include:

a. Fines – Auditors who have broken SEC rules may be fined by the SEC. Depending on how
serious the offense was, a larger fine may be imposed.
b. Suspension or Revocation of Registration - If an auditor breaks SEC rules, the SEC has the
authority to suspend or revoke their registration. As a result, the auditor won't be permitted
to audit publicly listed firms anymore.
c. Cease and Desist Orders - When an auditor transgresses SEC rules, the SEC may issue a
cease-and-desist order. This directive forbids the auditor from taking part in certain SEC
regulations-violating actions.