The Current Environment of Accounting

a. An article in your local newspaper tells you that a retail grocery business in your hometown has just declared bankruptcy. You are not surprised because your parents and others have said it was not a pleasant place to shop.

The newspaper article also reports that the accountants who audited the business are being sued by the investors and creditors of the failed business.

1. How might the auditors of a failed business be liable?

2. What is the “deep pockets” approach to liability, and how does it involve the auditors?

3. How can auditors best protect themselves from being found liable in such cases?

b. It is said that income tax laws are designed, in part, to raise money for government operations. What does “in part” mean? What other purposes might the income tax laws serve?

c. Health care and environmental concerns are two wellknown current social issues. Describe how accounting information could be used to find or evaluate potential solutions to each of these concerns.