Accountant's Legal Liability Flashcards
What did accountants do as their biggest risk reduction?
Created LLPs
What is contract liability?
The employment contract between an accountant and her client is subject to contract law general principles.
The accountant is bound to perform all the duties she expressly agrees to provide.
What are implicit duties of an accountant?
The accountant must perform the contract competently and professionally.
Who are beneficiaries of contract liability?
Contract liability extends to the client/contracting party and to third-party beneficiaries.
- When you audit a firm’s statements, the creditors/shareholders/vendors are beneficiaries
- You’re held responsible to these beneficiaries
What is the limit for damages on a contract?
Limit is $$ up to contract value
What are the four parts of a tort?
You must prove each of the following:
1) Duty
2) Breach of duty
3) Breach caused injury
4) Injury caused damages
- however, company’s loss of $$ doesn’t necessarily mean you caused it
What is negligence in terms of accountancy?
- An accountant is liable for failing to exercise the degree of care a reasonably competent accountant would exercise in these circumstances.
- Standard of care is different everywhere
- Expert witnesses testify as to the standard of care
Are you liable to third parties as an accountant?
When working for a public company, you’re liable to third parties
What is the liability for fraud?
An accountant committing a fraudulent act is liable for both compensatory and punitive damages to any person who he should have reasonable foreseen would be injured.
- Fraud = cheating, higher liability than a mistake
- Fraud is INTENTIONAL, you need to prove malice because they won’t admit they screwed up
- “Gross negligence”
What is a fraudulent act?
A false representation of material fact; made with knowledge and intension to deceive, and is justifiability relied on
What does state law impose criminal liability on accounts for?
- Willfully certifying false documents
- Altering or tampering with accounting records
- Using false financial reports
- Giving false testimony
- Committing forgery
What can an accountant disclose in his working papers?
- An accountant owns his working papers but may not disclose their contents unless the client agrees or a court orders the disclosure
- What you find out from your client is not privileged information (unlike a lawyer) and you must testify
Do accountants ever have privileged information?
Some accountants in the IRS have limited privileged information
Can lawyer duties/accountant duties replace each other?
NO, they cannot.
Can accountants give personnel advice to clients?
They can, but should not, because the information is not privileged
