O'Reilly logo

Wiley CPAexcel Exam Review 2014 Focus Notes: Regulation by Wiley

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Module 23: Professional and Legal Responsibilities

ACCOUNTANTS' LIABILITY

Liability under Common Law

An accountant may be liable under common law due to negligence or fraud.

Negligence

A loss due to negligence occurs when an accountant violates the duty to perform professional services in a competent manner. NEGligence may consist of

  • Nondisclosure of information to a client
  • Errors previously discovered not being corrected
  • GAAP not being followed

Best defense to common law negligence is that appropriate professional standards were followed.

Simple negligence

  • Careless mistakes
  • Defense of lack of privity may be available
    • But client and intended third-party beneficiaries have privity
    • Foreseen third parties have privity in majority of states under tort law
    • Foreseen third parties lack privity in states conforming to Ultramares case

Gross negligence

  • Reckless disregard for the truth
  • Lack of privity not valid as defense

Fraud

Fraud refers to conduct that involves all of the following:

  • Material false representation of fact
  • Justifiable reliance on the information
  • Awareness of the false information by the accountant
  • The falsity was made with the ultimate intent to deceive
  • The party must have suffered damages

Scienter refers to the accountant's knowledge of a false representation or material omission of fact with the intent to deceive.

Potential defenses against fraud include

  • Lack of intent to deceive
  • Immateriality

Lack of privity is not a valid defense.

Liability under Federal ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required