The reform act of 1995 is a revision for Securities Act of 1933 and Security exchange Act of 1934. The purpose is to reduce risks for auditors, executives of public companies, and public companies in litigation. Five of these changes that benefit auditors follows;
Proportionate liability cuts the amount of liability for an audit of he or she commits a violation unknowingly. This means that auditors no longer are liable for the damages financially that may happen to a user if he or she were unaware of falsification or misstatement.
Cap on Damages is set to cover a 90-day period of financial restatements that affects the cost of stock to drop purchased by a user of the financial statements. This uses the average cost of stock in this period compare to purchase price so the auditor is only liable for the difference of actual to average cost.
Responsibility to report illegal acts requires an auditor to report any illegal acts performed by the company in the financial statements to the board of directors and then to SEC within one day of notifying the board of director. This protects the auditor from being liable for the damages created by the illegal act.
Another part of this reform act is if the defendant is found that the act is unwarranted, the plaintiff pays the court and lawyer cost of the defendant. This would protect the auditor by making plaintiffs think if the lawsuit is warranted before filing suit because it could cost the plaintiff money besides time.
The fifth reform is limiting the number of suits a plaintiff can file. They are allowed only five suits in three years. This saves the auditor time by not being in court, the cost of defendingthemselves, and stopping plaintiffs from filing numerous suits to try to gain money not owed and receiving settlements outside the court form auditors because of time restraints and costs.