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Third Party Liability Approaches

Read the overview below and complete the activities that follow.

Common law cases are decided often by reference to established precedents or past decisions. The three main

precedents regulating auditors' liability are: Ultramares $($known user$),$ Restatement $($foreseen user$),$ and Rosenblum

$($foreseeable user$).$

CONCEPT REVIEW:

The three approaches that regulate auditor responsiblity create conflicting precedents relative to auditor liability for

negligence. Variants of each approach exist in every state.

The

approach requires auditors to be responsible to known financial statement users.

The Restatement approach requires responsibility towards

users of the financial statements.

The

approach assigns responsibility by the auditor to the narrowest category of financial statement users.

The

approach includes responsibility toward any foreseeable users of the financial statements.

The third party user approach revolves around auditor