Case Fred Stern & Company, Inc.

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1)It would impact the work of auditors in terms of the care they exercise in preparing the auditor’s report. The cost would be more time spent on audits and the clients would need to better prepare their own reports. The range and number of persons who could suffer loss consequent upon negligent of auditors is large and includes investors and creditors. It would benefit them greatly because the audit work should be done with better care therefore they can use the statements with more trust. I feel that the judge should have authority to decide who auditors are liable to. In this case is clear that Touche was negligent and they should have liability to all foreseen third parties.

2)In section 11 of the securities act of 1933 the auditors have the burden of proof and in the securities exchange act of 1934 section 18 the plaintiffs have the burden of proof and auditors cannot be held liable for ordinary negligence. They must prove they suffered an economic loss, the financial statements contained a material misstatement, the loss was caused by reliance on the materially misstated statements, and auditors were aware that the financial statements contained a material misstatement. This difference exist because people would buy shares after they know that a company is going bankrupt and in making the burden of proof on the plaintiff it would take that away. In the SEC act of 1933 the plaintiffs only have to prove that they suffered an economic loss and the statements there were material misstatement. By having to show reliance on the statements it takes away a defense that the auditors had which is the causation defense. The defense for auditors in security exchange act of 1933 is due diligence or causation defense. In SEC act of 1934 it is good faith which is no knowledge of the material misstatement. Under common law auditors are liable to reasonably foreseeable third parties.

3)The key differences in the report is that in audit reports that we have today it...
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