Read each scenario below. Describe the potential liability to the CPA and the firm. Then, offer a resolution.
Scenario 1: After completing an audit of Tablewood Company, the audit firm Smith and Orange, LLP, received a subpoena for all documents related to the audit. The firm is refusing to respond, arguing that all documentation is privileged information between the firm and the client.
Scenario 2: Brenda Bookings, CPA, is the defendant in a lawsuit alleging that she should be held legally liable for gross negligence for a fraud in the financial statements of one of her clients. Bookings was unsure of how to establish valuation for securities included on the financial statement, so she relied on a price estimation provided by management.
Scenario 3: Frank Greene, CPA, is facing a lawsuit for constructive fraud in the audit of one of his clients. Greene reviewed all audit documentation and is convinced that he followed all appropriate procedures and complied with the standards of the profession. However, he is unsure of what to use as his primary defense tactic.