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The nature of the legal obligations imposed on public accountants, although they fully refer to laws and cases in the United States, the lessons that can be drawn from this discussion will be very beneficial for public accountants in Indonesia. First, reasons for increasing legal guidance from potential sources legal obligations, an overview of legal guidance against public accountants is also included. This was examined by Philip Rotner, a legal consultant who specializes in legal assistance to public accounting firms in the offices of McCuthen, Doyle, Brown & Enersen in Francisco This chapter will end with a discussion of the efforts that can be taken by professionals and practitioners of public and individual accountants to ease their legal obligations while still meeting the needs of the community.

Code of professional

ethics to the public Professionals must be careful in carrying out their duties for others. Professionals in the audit field have an obligation to fulfill contracts disposed of with their clients. Their obligation to clients is to prevent fraud and / or breach of contracts that can affect the results of work, auditors also have obligations others outside the client in some situations, although the general view criterion is that auditors must pay attention to third parties who are a small part of the public that must be considered by auditors, some states, including New York, apply tighter obligations regarding obligations to third parties, some others have a broad view again by requiring professional seriousness in carrying out their duties, besides common law is a law relating to the general public, auditors responsible to third parties under statutory law are laws relating to the state, both securities Act 1933 and the Security Exchange Act 1934 contain parts that regulate the basis for filing claims against the auditor. Finally, in a small number of cases, the auditor is also responsible for several criminal acts, criminal actions charged to the auditor only occur if there are signs that the auditor trying to fool or harm others,


The four sources of auditor's legal obligations defined in the previous paragraph are the main focus of this chapter. Figure 4.1 summarizes this, with examples of potential claims from each source.

Sources of liability are examples of potential claims

Client-common law

When-common law party Federal securities act-criminal Klient according to the auditor because it did not find defalkation during the audit

The bank sued because it did not find material misstatements in financial reporting

The shareholders sued the auditor for not finding material misstatements in the report

In recent years both the number of legal guides and the magnitude of those guidelines have increased rapidly, especially for those involving third parties, both according to common law and statutory law. There is no simple reason that can explain
<>······· Many alternative accounting principles that can be chosen by the client in making financial reports, and the lack of clear criteria for auditors to evaluate whether an adequate alternative has been chosen.
Many accounting and legal professionals believe that the main cause of legal guidance against public accounting firms is the lack of archiving the use of financial statements about the difference between business failure and audit failure, and between audit failure and audit risk. The indicator will be defined first, then followed by a discussion of how often misunderstandings regarding terminology differences occur in legal guidance to auditors:
1. business failure
Occurs if the company is unable to repay its debt or is unable to meet the expectations of its investors, due to economic or business conditions, such as a recession, bad management decisions, or unexpected competition in the industry, extreme cases that reflect business failure are bankruptcy, as mentioned in this chapter there is always a risk of failure in business.
2. audit failure
Occurs if the auditor issues an incorrect audit opinion for failing to meet the requirements of generally accepted auditing standards, for example, the auditor must assign sufficient assistants to carry out the audit task because otherwise they will fail in finding material errors.
3. audit risk
It is a risk that the auditor concludes that the financial statements are fairly presented and therefor reasonable opinion can be issued without exception, whereas in the following chapters, audits cannot be expected to reveal all the errors that are very neatly hidden so very difficult to find; therefore, there is a risk that the audit will not reveal material misstatements in the financial statements.
Most accounting professionals agree that if an audit fails to reveal a material misstatement and therefore the wrong type of opinion is issued, the relevant public accounting firm must be asked to maintain the quality of its audit. If the auditor and the public accounting firm or insurance company must pay them who suffer from the auditor's negligence. In practice it is difficult to determine when the auditor fails to use his expertise can have a negative impact on public accounting firms
For example; if a company goes bankrupt, or does not pay the money, then generally the financial user will claim that there has been an audit failure, especially if the most recent auditor's report shows that the financial report is presented fairly, worse if there is a business failure and the financial report which is then issued incorrectly serving, users will claim that the auditors are negligent even if they have implemented it in accordance with GAAS. Conflicts between auditors and users occur because of intentional expectations between users and auditors, most auditors who conduct audits in accordance with GAAS, some users even believe that the auditor guarantees the financial future and fortunately the law always tries to support the auditor. Poor intentions often lead to unexpected legal guidance. Perhaps the accounting profession is responsible for explaining to users of financial statements the role of auditors and the difference between business risk, failure risk and audit risk. Audits can also be caused by expectations and they suffer business losses to cover the losses of a member, regardless of who is wrong. concepts that affect liability public accountants are responsible for every aspect of their duties, including tax audits / management consultancy, and accounting and bookkeeping services, for example if an accountant ignores the calculation and filing of a client's tax return, as he should, he can incur penalties and interest must be paid by the client plus the tax calculation fees charged. in some states the court may also impose a fine on him. Most court proceedings involve financial statements that have or have not been audited. Obligations in an audit can be classified into (1) obligations to clients, (2) civil obligations for third party publics, and (3) criminal obligations for third parties and (4) criminal liability. Several legal concepts can be applied to any lawsuit against public accountants, these concepts are the concept of prudence, obligations for other people's actions, and lack of communication rights.

d. prudent person concept there is an agreement between the accounting profession and the court that the auditor is not the guarantor or the person in charge of the financial statements. The auditor is only obliged to carry out a thorough audit. However, the auditor is not flawless. The standard of accuracy that can be expected from auditors is often mentioned as a prudent person concept, this is stated in Cooley on Torts rather than being flawless. Any person who gives services to others and is employed by him has an obligation to use his expertise carefully and sincerely if someone offers his services it can be assumed that he can provide himself to the community as someone who has a level of expertise that is also owned by someone else is doing the same work, and, if what he promises turns out to be unfounded, then he has committed fraud against everyone who has trusted him.

e. liability for the actions of others Parthners, or holders in a professional company, are jointly responsible for the actions of the enumerator shown to one of its members, professional professionals do not have limited liability. Parthners can also be responsible for work bags that other people they trust. This is stipulated in the law of imposition, there are three groups of auditors who are trusted to do part of the work, and experts who are called to provide technical information for example, if an employee makes a mistake in conducting an audit, the parthner must be responsible for the following employee's work.

f. code of ethics profession interpretation of the public accountant

1. lack of special communication rights According to the common law, public accountants are not entitled to withhold information if requested by the court on the grounds that the information is kept confidential, information in a person's working paper the auditor may be requested and required by the court if necessary. Secret speakers between client and auditor cannot be covered in court. Some states in the US have legislation that allows privileged communication rights between clients and auditors, however the maximum intended at the time of the relationship must be explained as privileged communication rights. The public accountant may refuse give testimony in a state court if there is a communication right

2. definition of legal triminology The material discussed later in this chapter can be captured more effectively if the terms relating to the obligations of public accountants are understood.

3. negligence and fraud
The first four terms relate to auditor fraud. Distinction will be useful in discussing the application of law in various legal proceedings against auditors because they provide different results.
Ordinary negligence in the absence and seriousness of the profession which is expected to exist in certain circumstances, if negligence is evaluated, this term indicates things that are not done by competent auditors in the same circumstances.
Gross negligence of inaccuracy, and behavior that leads to carelessness, carried out by someone. Some states do not distinguish ordinary neglect and gross negligence. Constructive fraud (contractive forrounding) extreme or extraordinary negligence even though there is no intention to deceive or harm, for example if an accountant fails to follow GAAS, he could be accused of constructive fraud even though he did not intend to deceiving the users of the financial statements
Errors due to negligence (tort action for negilence) failure of one of the parties to fulfill obligations, thus harming the promised party. Examples of common mistakes made by the auditor is the bank's claim that the auditor has responsibility for material errors in financial statements, which cannot be found which is very influential in lending.
4. contract law
Breach of contract: failure of one or both parties involved in the contract to fulfill the terms of the contract. An example is the failure of a public accounting firm to submit tax as on the agreed date, the related party as contained in the contract is declared to have a contractual relationship.
Generally, public accounting firms and clients come to letters of control to ratify their agreements regarding services to be provided, costs and time. A common example is a bank whose balance sheet shows a large outstanding loan and requires an audit as an auditor as part of the audit as part of its credit loan agreement, the mention of a third party in the assessment letter is often disclosed to show the interests of a third party.
5. common law and statutor law
Common law. Laws that develop and come from court decisions and not from government regulations. An example is the bank's guidance relating to the auditor's failure to find material misstatements in the financial statements, which have been used as guidelines for lending.
Statury law. The law has been passed by the U.S. congress and other government bodies. Letter promulgations hope that 1933 and 1934 are statutory past influences on auditors
In carrying out their duties as an auditor, an accountant must be careful, because the auditor's report will greatly influence public opinion. Another thing that may be due to carelessness is the legal guidance of the party who feels aggrieved.
In reading the financial statements there needs to be an understanding that there are several different failures, the first is a business failure, which is caused, among others, the inability of the company to pay its obligations or the expectations of its investors due to many of them, bad economic conditions, poor management decisions, competition, etc. . The second is the failure of the audit, because the auditor issued a wrong opinion and failed to meet the requirements of generally accepted audinting standards.

The auditor's legal obligations

A. Background The most common legal obligation for public accountants so far is the obligation to the client, because of failure to carry out the audit task within the agreed time of inadequate audit implementation, failure to find detalkasi, and breach of confidentiality by public accountants. Such legal fees are relatively small in number and do not require publication and are often the basis of other guidance, the case of finding of funds is an exception, in which the court compensates the company in guidance to the public accounting firm for a breach of contract.

b. client obligations general legal guidance covers claims against auditors because it cannot find employee detalking (theft of assets) as a result of the negligence of the audit. Guidance may be in the form of breach of contract, error due to negligence or both errors can occur due to ordinary negligence, gross negligence or froud, mistakes are common because the amount covered is normally more than covered by the breach of contract. The main issue in this case usually involves the level of rigor that is needed although it is understood that no one is perfect, whether he is an expert, but in many cases, a mistake or a significant error will lead to a generally accepted audinting which is often interpreted as clear evidence and complete absence of neglect. An example of an audit case that raises questions about the negligence of public accountants is the case of Cenco

c. the auditor's defense of the client's guidance of a public accounting firm usually uses one or a combination of four of the client's defense advocates if there is a legal guidance by the client: i.e. no contribution, and no mutual feedback. There is no obligation. The absence of an obligation to perform services means that the public accounting firm claims there is no implied or stated office, for example, the public accounting firm claims that a mistake cannot be disclosed because the office only carries out review services, not audits. The usual way for public accounting firms to show no obligation to carry out their duties is the use of an assignment letter, many legal experts believe that a good assignment letter is to reduce unnecessary legal guidance. There is no negligence for the implementation of work that does not contain negligence in an audit of public accounting firms that the audit was carried out in accordance with generally accepted audinting standards.

The precautionary concept discussed earlier stipulates that according to the law public accountants are not deemed in error. Likewise, SAS 47 (AU 312) and SAS 53 (AU 316) explain that an audit in accordance with GAAS has limitations to be discovered, requiring the auditor to find errors and guarantees the accuracy of the financial statements. The court does not require it.

Negligence of contributions, defense of negligence of contributions made by clients means that the public accounting firm guarantees that if the client has fulfilled certain obligations will not suffer losses. For example, the client claims that the accountant's office failed to disclose the theft of cash by an employee. The defense has informed management of the weaknesses of the internal court system which gave the opportunity for the froud, but management did not make improvements. Assuming a strong defense is made against negligence of contributions. For success in guiding the auditor, the client must be able to demonstrate that there is a close reciprocal relationship between the auditor's violation of the standard of seriousness and the loss suffered by the client. for example, suppose the auditor fails to complete the audit at the agreed time. The client said that the bank refused to renew the loan for other reasons, for example the client's financial condition was getting weaker.

d. obligations to third parties under common law

a public accounting firm may be liable to third parties if there is a loss to the suing party because it relies on misleading financial statements. third parties include supplier shareholders, bankers and other creditors, employees, and customers. A general guideline occurs if a bank cannot collect large amounts of debt from a bankrupt customer. Banks can judge the loan based on misleading financial statements that have been audited and public accounting firms must take responsibility because they fail to conduct a thorough audit

e. ultramares doctrine
the audit case that began liability to a third party was the case in 1931, ultramares corporation vs touché. This forms a legal guideline which is known as the ultramares doctrine
Primary beneficiary is a person who must be given information about the audit conducted. Ultramares is also an example that if there has been a large fraud or omission, the auditor can be held responsible for the interests of third parties.
f. first known use
In recent years, many courts have expanded the use of dokrim ultramares to enable third parties to obtain compensation in more situations than before, by introducing user concepts that can be known by the auditor as those who rely on their decisions on financial statements. For example, an audit client who has a large loan to the bank at the balance sheet date. In accordance with this concept, the identifiable use must be considered the same as a third party.
The approach used by some states is to apply the re-statement of torts to an authoritative compendium of legal principles that can be used as a guide. This regulation states that users who can be known in advance are members of a limited and recognizable group, who are deemed dependent on the work of public accountants, as well as creditors, even though these creditors are not specifically known, when the public accountant performs his duties. A case which is based on this doctrine is rusch factors vs Levin.
g. usage that can be known in advance
Wider interpection from third parties is to use the concept of foreseeable users. With this concept, the use that the auditor must be able to know has the same rights as other users of financial statements who have a contractual relationship to this concept, several different users such as shareholders and prospective third party liability summary. Being a tendency in many states to apply user concepts that are known or can be known in advance. For example, rush factors extend the auditor's responsibility to third parties for the usual negligence of those who have a contractual relationship to the party to be seen, rosemblum extends again with use that can be aka healthy look. Even if this tendency causes a warning to the accounting profession, another new case is the Credit Alliance (1985) in New York, again as in ultramatres. In that case, the credit alliance, the lender sues the auditor of one loan, and blames the borrower's financial statements, who are guilty of causing loan errors. The New York court returned the lower court's decision, saying the auditor had no relationship. Thus, the court returned to the basic concept of relations as in the case of ultramares.
h. the auditor's defense of third party guidance
three of the four defenses available to the auditor in dealing with clients also apply to dealing with third-party guidance. Negligence of contributions usually does not apply because third parties do not apply in a position to give constructions for erroneous financial statements.
the preferred defense for dealing with third-party guidance is the absence of negligence in the completion of work. If the auditor carries out audits in accordance with GAAS other defenses are not required. In other words, the absence of negligence in completing work is difficult to show in the trial, especially if the jury is formed from the public.
Defending task limitations in dealing with third-party guidance includes limitations

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