Term
| 2 sources of duties of accountant |
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Definition
- express agreement of the parties
- implied agreement (based on standard of profession)
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Term
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Definition
| to provide auditor evidence needed to express opinion on fairness of financial statement, not to detect fraud, shortages, defalcations or irregularities |
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Term
| 3 circumstances where accountant is liable for failure to detect fraud or irregularities |
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Definition
- normal audit by a careful accountant would have detected them
- in engagement letter, accountant undertakes greater responsibility to detect them
- wording of audit report indiciated that the auditor does have such a duty
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Term
| client breach of contract |
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Definition
| results when client interferes with or prevents the accountant from performing |
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Term
| consequences of breach by accountant |
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Definition
| accountant entitled to fee if breach is minor and client is entitled to compensatory damages only |
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Term
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Definition
| attempts by accountants to avoid liability by disclaimers are generally ineffective |
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Term
| 4 elements of recovery to be proved by plaintiff in a negligence case |
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Definition
- duty
- breach
- damages
- proximate cause
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Term
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Definition
the degree of judgment and skill possessed by a reasonable accountant under all circumstances
(NOTE: GAAP and GASS compliance is persuasive, but not conclusive because violation almost automatically establishes negligence, but not necessarily establishes reasonable care) |
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Term
| 3 ways to raise standard of duty |
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Definition
- accountant being a specialist
- accountant holds self out as having special expertise
- contractural provision in which accountant undertakes higher duty
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Term
| breach of duty by accountant |
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Definition
| error of judgement or other mistake is not actionable unless its negligent |
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Term
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Definition
| plantiff must prove that accountant's negligence directly caused his injuries |
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Term
| elements of proximate cause |
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Definition
- "but for" causation ("but for" negligence, loss would not have occured" and
- reasonable foreseeability (no independent intervening causes)
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Term
| losses with multiple causes |
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Definition
| if loss had multiple causes, accountant is liable for negligence if it was a "substantial factor" in bringing about the loss |
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Term
| 2 defenses to a negligence claim |
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Definition
- all jurisdictions recognize that accounts can raise as a defense the client's carelessness when that carelessness interferes with the accountant's performance of his task
- most jurisdictions recognice that accountants can raise as a defense the client's carelessness that contributes to a loss even when that carelessness does not interfere with the accountant's performance of his task
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Term
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Definition
- false representation of fact
- misrepresented or omitted fact was material
- accountant knew or recklessly disregarded the falsity (knowledge a.k.a. scienter=actual fraud, reckless disregard or gross negligence=constructive fraud)
- accountant intended to and did induce plaintiff's reasonable reliance on the misstatement or omission
- client suffered damages
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Term
| 3 differences between fraud and negligence |
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Definition
- may be liable for punitive damages as well as compensatory for fraud, opposed to just compensatory for negligence
- fraud is an intentional tort negligence is mere carelessness
- defrauder's liability runs for all foreseeable victims of the fraud whereas a negligent accountant's liability is much more limited in scope
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Term
| privity approach of Ultramares v. Touche |
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Definition
| accountant is liable only to those with whom she/he is in privity of contract |
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Term
| restatement "limited class" approach (commonly used today) |
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Definition
| accountant is liable to a limited class of nonclients where the accountant knows (a) the information being supplied to the client will be given to, or is for the benefit and guidance of, a limited group of third persons, or (B) the information will influence those third persons in a specific transaction or type of transaction |
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Term
| reasonable forseeability approach |
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Definition
| an accountant is liable to whomever he or she can reasonably foresee may use the financial statements he or she certifies or prepares |
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