Title:
AUDITORS’ DUTY TO DETECT ILLEGAL ACTS HAVING A MATERIAL EFFECT ON THE FINANCIAL STATEMENTS: A CASE STUDY OF MILLER INVESTMENT TRUST v. KPMG

Authors:
Stephen Errol Blythe, USA

Abstract:

This is a case study of Miller Investment Trust v. KPMG which notes the court’s common law adoptions of Generally Accepted Auditing Standards (GAAS). In this case, the court relied upon GAAS in its decision-making. It covers: (a) elements of securities fraud; (b) Private Securities Litigation Reform Act; (c) assessment of auditors’ compliance with GAAS; (d) auditors’ professional competence to determine whether a client has committed illegal acts; (e) whether an auditor is required to investigate a client’s questionable acts; (f) investigatory procedures required of auditors; (g) what an auditor should do if unable to determine if a client’s questionable acts are illegal; (h) what an auditor should do if he finds illegality having a material effect on the financial statements, and it has not been disclosed by the client; (i) minimally acceptable action of an auditor after discovering illegality; (j) disclosure of internal control weaknesses; (k) whether an auditor is required to verify a client’s customers’ addresses against public records; (l) grounds for denial of an auditor’s motion to dismiss in a securities fraud case; (m) whether, in this case, there were sufficient grounds to dismiss the lawsuit; (n) whether an auditor’s statement of compliance with GAAS is a statement of fact or an opinion; (o) whether an auditor’s statement in an audit report that the client prepared its financial statements in accordance with Generally Accepted Accounting Principles is a statement of fact or an opinion; (p) the elements of Negligent Misrepresentation; and (q) whether an auditor is generally liable to third parties that it has no knowledge of.