1. Identify five other ways in which the Private Securities Reform Act of 1995 will potentially change auditors’ legal liability. Explain how each is of potential benefit to the auditor.

2. Explain a new responsibility that the Private Securities Litigation Reform Act of 1995 imposed on auditors.


(Risk of material misstatement) Your client, a manufacturer of computer components, has experienced slowing demand for its product. Recently, it cut back from three shifts a day to two shifts a day, and the company has eliminated the backlog of orders that existed in prior years by providing financing to customers. Newspaper reports indicate that competition has taken significant business away from the client because a large investment in R&D has not resulted in improved products. Furthermore, a small handful of your client’s customers are experiencing financial difficulties because of slowing demand for your client’s products.

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