Attempts to reform auditor liability because tort liability was out of control.
Drops legal standards of joint-and-several liability and adopts proportionate liability for all non-knowing securities violations under the Exchange Acts.
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A party is liable only for that proportion of damages for which she is responsible.
Only those who committed “knowing” securities fraud will suffer joint and several liability.
Telltabs, Inc. v. Makor Issues and Rights, plaintiffs did not meet the “strong inference” standard, and were too vague to establish a “strong inference” of scienter.
S O X and Auditor Legal Liabilities Section 404 Internal Control over Financial Reporting
S O X passed to increase the transparency of financial reporting by enhancing corporate disclosure and to foster an ethical climate.
S O X increases auditor liability to third parties by specifying or expanding the scope of third parties to whom an auditor owes a duty of care.
S O X requires accounting firms to review and assess management’s report on internal controls and issue its own report.
Failing to disclose detected material weaknesses exposes auditors to Section 11 liability.
P C A O B inspections to date have shown that auditors’ opinions on internal controls are inadequate in many cases.