1. The number of lawsuits against accounting firms has increased in the past decade. Discuss the following questions: (a) How successful might the measures taken by regulatory agencies be in reducing...

1. The number of lawsuits against accounting firms has increased in the past decade. Discuss the following questions:

(a) How successful might the measures taken by regulatory agencies be in reducing lawsuits in auditing?

(b) What steps, in your opinion, should be taken by accounting firms to ease the pressure on auditors?

2. Assume that accounting firm XYZ has issued an unqualified opinion on the financial statements of Field Company for a particular year, which contained a material misstatement. In the subsequent year, the company sustained significant operating losses, and the stock price went down by 60 percent whereas the market index declined by only 10 percent. An investor, who held a considerable amount of the company’s stock for the last three years, was obliged to sell the shares at a substantial loss. The investor had reason to believe that the financial statements were misstated before purchasing stock in Field Company. On this basis, he is suing the audit firm and seeking to recover his loss from the auditor. Discuss the above situation. What arguments might the investor and auditor use for defending their cases?