1) It would impact the work of auditors in terms of the care they exercise in

preparing the auditors 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 tells us the standard that the audit was performed in accordance with
and has the signature of the auditor. It would also state that the financial
statement is free of material misstatements and in their opinion is fairly
stated. In the 1920 version it said that in their opinion it is true and
correct view of their financial condition. There were fewer regulations in the
1920s and after the stock market crash the government wanted to gain the trust
of investors back so they created the SEC and had a set standard so investors
and creditors can look at the report and understand it.

4) The balance sheet was thought to provide a clear picture of the companys
financial position so at the time third parties felt it was sufficient
financial information. Over time more and more companies have become
interstate and multinational corporations and there was more need for a
federal standard. With the growth of public companies there were standards
created so that investors would feel safe to invest and it would help the
average investor and protect them from companies.

5) The auditor responsibility is to the client and audit risk is used to
determine the amount of audit procedures needed to perform the audit at an
acceptable level. The purpose is to be objective and should not be considering
the type and number of third parties. No the auditor should not insist that
the third parties be identify because they are not responsible to distribute
the financial statements to the third parties, the client is. In doing their
report it is for third parties but, they are doing the report for their client.
Yes it would eliminate liability to nonprivity parties but it is impossible to
do a report that meets the objectives for all parties. There is a set standard
for auditing so that all parties can use for a basis for their decision.