Litigation Risk Management

By Kranacher, Mary-Jo | The CPA Journal, May 2006 | Go to article overview

Litigation Risk Management


Kranacher, Mary-Jo, The CPA Journal


Has the CPA Become the CYA?

There is a growing awareness in our society of the responsibilities of certified public accountants and the role CPAs play in maintaining the integrity of our economic system. As our visibility has increased, however, so has our potential liability, especially to the users of our services. In many cases, our knee-jerk reaction has been to cover our assets by focusing on the minutiae in the rules. As a result, we're unable to see the forest for the trees.

In response to my March editorial, "Certified Public Accounting: It Isn't Just About Numbers," reader Dave Tatlock, CPA, CPCU, wrote:

I've been in the profession for 20 years, the first 13 as an auditor. The thing I have found troubling about how our profession has evolved since my days as a staff accountant is how litigation risk management has transformed the audit process. The profession has largely taken a defensive approach to managing this risk: increasing required disclosures (often without regard to the usefulness of the information being presented), while reducing as much as possible the public's expectations of the value of the audit process. The CPA has become the CYA.

So here come the auditors, disclaiming responsibility for being able to detect fraud, discover materially misstated balances, or unravel complex transactions. In several recent cases, they have been able to offer real proof of their inabilities in these areas. With the notable exception of SAS 99, the profession's message to the investing public has been that auditors are basically powerless in the face of management that would manipulate results. Where does this end?

The way to change perceptions is to change reality-public accounting firms need to go on the offensive, and take more responsibility that the financial statements they audit can be relied upon. They need to produce a real value-added service to the companies they audit and to the general public, and to charge accordingly for this service. A strong profession, backed by the confidence of the investing public, can then take an offensive position against litigation risk, rather than trying to avoid financial responsibility by seeking to diminish its own importance in the eyes of the public.

The "top 10" list of auditors' worst nightmares includes learning that their audit risk has become a reality. Audit risk is defined as the risk that an auditor will conclude that the financial statements are fairly stated and an unqualified opinion may be issued, when they are in fact materially misstated. So what can be done to address the checklist "CYA" mentality that has evolved from the fear of litigation due to this risk? …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Litigation Risk Management
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.