Chapter 9 - Accountant Liability Flashcards
Who can sue for a breach of contract?
Anyone in privity (anyone that hired you)
Intended third party beneficiaries (Ex: A bank can be a beneficiary if it using the info for a bank loan)
What must the plantiff/purchaser prove in a breach of contract case?
MILE
Material misstatement or omission
Info in financial statements was the proximate cause of harm to the plantiff
Loss (damages) - Plantiff must have suffered a financial loss
Error caused by breach
What defenses does an accountant have against a breach of contract case?
Didn’t breach the contract or fully performed under the contract terms
Who can sue for negligence?
Anyone in privity (client and intended third party)
Anyone known and forseen by the CPA
What must the plantiff/purchaser prove in a negligence case?
MILE + Privity
Material misstatement or omission
Info in financial statements was the proximate cause of harm to the plantiff
Loss (damages) - plaintiff must have suffered a financial loss
Error
- Nondisclosure of information to client
- Errors previously discovered not corrected
- GAAP/GAAS not followed
Privity
What is the definition of a foreseen party?
Third party or member of a limited class that the accountant knew would rely on the financial statements for a limited transaction.
Accountant is LIABLE to foreseen parties for negligence.
What defenses does an accountant have against a negligence case?
Followed GAAS (showing due professional care)
Lack of privity
Not the proximate cause of the loss
