Case 6-4 Anjoorian et al.: Third-Party Liability

1.      Analyze the potential for legal liability of P&T under each of the four basic theories of liabilities discussed in Chapter 6.

2.      Were the auditors guilty of professional negligence? Explain.

3.      Judge Silverstein relied on the Restatement (Second) of the Law of Torts for his ruling. Assume he had relied on the “near-privity relationship” ruling in Credit Alliance, and evaluate the legal liability of the auditors using that standard.

4.      The defendants argued in the case that, in order to find a duty to third parties, an accountant must have contemplated a specific transaction for which the financial statement would be used and that no such transaction was contemplated here. Do you agree with this statements from the perspective of auditors’ third party liability? Why or why not?

Summary:2

Please read the assigned case, answer the questions in the textbook, and create one multiple choice question (no true/false accepted) with four answer choices. Include the correct answer.

Case 7-1 Nortel Networks

1.     Describe each of the financial shenanigans used by Nortel and how they manipulated earnings.

2.     What were the motivating factors that led to the fraud at Nortel? How should the auditors have considered these factors and the culture at Nortel in its risk assessment?

3.     Assume you had to prepare an assessment of internal control over financial reporting at Nortel, what would your conclusion be and why?

4.     Does it appear from the facts of the case that the Deloitte auditors met their ethical and professional responsibilities in the audit of Nortel’s financial statements? Be specific.

Summary:3

Please read the assigned case, answer the questions in the textbook, and create one multiple choice question (no true/false accepted) with four answer choices. Include the correct answer.

Case 8-4 Krispy Kreme Doughnuts, Inc.

1. How was mismanagement at Krispy Kreme reflective of leadership failure?

2. Describe the financial shenanigans used by Krispy Kreme. In this regard, is earnings management always a sign of failed leadership?

3. PwC had been Krispy Kreme’s auditor since 1992. How can a firm’s length of service influence audit decisions? What biases may creep up over time? Does it seem this occurred at PwC?

4. One of the reasons behind Krispy Kreme’s financial shenanigans was its failure to meet earnings guidance. How might earnings guidance and the choice of non-GAAP measures reflect a particular style of leadership?