Discussion On The Countermeasures Of Infringement Civil Litigation In Accounting Firms

In China,CPA's civil liability includes liability for breach of contract and liability for tort.The CPA signs a contract with the client,if the CPA does not fulfill the obligations stipulated in the contract during the performance of the contract,the principal may hold him liable for breach of contract.If the CPA violates the auditing standards and relevant laws and regulations,and causes losses to third parties other than the principal,the CPA shall bear the tort liability.Since the restoration of the CPA system in China in the 1980 s,the CPA profession has continued to grow and develop.The CPA,known as the “Economic Police”,plays a huge role in maintaining the market economic order.However,in recent years,financial fraud cases have occurred frequently,and the CPAs responsible for the company's financial report audit have been questioned in many aspects.Auditing is a highly professional industry.Most investors have misunderstandings about auditing.They rely on their perceptions of CPA's responsibilities and work results.If the audited entity has financial fraud and the CPA issues an inappropriate audit opinion,once the company's financial fraud acts,the investors will often think that the CPA colluded with the audited entity and fooled investors,or they will think the CPA neglected his duties and found no fraud in the audited unit.The angry investors will sue the CPA and the accounting firm.But in fact,if the audited entity deliberately conceals and has a good falsification method,even if the CPA strictly abides by the auditing standards and does the necessary professional care,it may not be able to detect errors or fraud in the financial report.This is an inherent limitation of the audit.But instead of digging into who was at fault,investors will sue the accounting firm to get as much compensation as possible.In the tort liability disputes between investors and accounting firms,because it is so difficult to adduce evidence,and the courts are more biased towards the weak,accounting firms are often at a disadvantage.However,in the case of the infringement dispute between Zhejiang Zheng Mao Venture Capital Co.Ltd and Grant Thornton,Grant Thornton won the lawsuit.This is an important reference for us to study how accounting firms deal with infringement civil litigation.Therefore,this paper takes this case as an example,uses literature research method,case analysis method and summarized method,which revolves around the reasons for the infringement civil litigation of Grant Thornton,the accounting firm's countermeasures of pleading and the reasons for winning the case are analyzed to discuss the specific measures of the accounting firm to deal with infringement civil litigation,and provide ideas for the accounting firm to reduce unnecessary infringement litigation.This paper consists of five parts.In the first part,the research background and significance of this paper are expounded,and then summarizing and reviewing the domestic and foreign literatures on the infringement liability of accounting firms,the influence factors of the accounting firm's legal liability,and the countermeasures to reduce litigation risk.Finally,introducing the research ideas,research methods and the framework of this paper.The second part summarizes the theory of infringement liability of accounting firms.If the CPA has a fault or illegal behavior in the audit process,issues an inappropriate audit opinion,and causes losses to other interested parties other than the principal,the accounting firm where the CPA is located shall bear the tort liability.There are four constitutive requirements of the infringement liability of accounting firms: the subjective fault of the CPA,the illegal behavior of the CPA,the objective existence of the damage fact,and the causal relationship between the false audit report and the damage facts.The imputation principle of the infringement liability of accounting firms adopts the fault presumption principle.This part also introduces the theory of admissibility dangerous and impediment of illegality,the theory of audit expectation gap,and deep pocket theory.These theories will provide a basis for analyzing problems and proposing solutions.The third part introduces the case,the main reasons for the prosecution are the inherent limitations of the audit,the intentional concealment of the audited entity,the audit expectation gap and the expansion of the “deep pocket” theory.From the analysis of the constitutive requirements and imputation principle,Grant Thornton is not necessary to bear the tort liability.The fourth part analyzes the focus of the case,the difficulties in pleading and the reasons for winning the case.The focus of the case is whether the audit report issued by Grant Thornton is an untrue report and the identification of interested person,the difficulties in pleading are the identification of the “authenticity” of the audit report,the definition of the professional prudence,the judgment of causality,and the distinction between auditor responsibility and management responsibility.The main reason for Grant Thornton's success is that the CPA strictly abided by the auditing standards,and the professional lawyer also provided indispensable help for pleading.The fifth part expounds the enlightenment to accounting firms in dealing with infringement civil litigation,it can avoid unnecessary legal proceedings from four aspects: improving audit quality,increasing audit report information content,bridging audit expectation gap and strengthening daily management,and once sued by investors,expert assistants and lawyers can be used to assist in the prosecution.