MC #48 An audit client's Dec. 31, 2019 financial statements included an accrual for a...
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MC #48 An audit client's Dec. 31, 2019 financial statements included an accrual for a contingent liability related to an ongoing lawsuit. After the audit report was issued, the client lost the lawsuit and the dollar amount of the loss was much higher than the amount recorded as a contingent liability. Given the facts available at the time of the audit, the auditor performed typical audit procedures and judged the year-end contingent liability to be reasonable. This judgment by the auditor will likely result in: sanctions by the PCAOB against the individual auditor as well as the accounting firm. no successful legal action because the auditor exercised reasonable care. a successful lawsuit against the auditor finding that the auditor was negligent. a successful lawsuit against the auditor finding there was a breach of contract
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