Common Law Duties and Liabilities to Clients and Third Parties

Question 1

Breach of Contract Elements to the Client

Answer 1

1) Existence of an enforceable contract
2) Client complied with their obligations
3) Accountant breached the contract

-Failed to file, filed late, contains errors, gave bad advice, and damages were caused

Question 2

What is the damages that the client can argue in a breach of contract?

Answer 2

• Compensatory Damages- Compensate for the damages cause

Question 3

Defenses for breach of contract:

Answer 3

Statute of limitations:

• Oral: 2 Years
• Written: 4 Years

Justifiable breach:
- Client refuses to provide account information

Question 4

What are the negligence elements:

Answer 4

• Owed a duty of care
• Breached the duty of care

Accountant must: act with the standard of knowledge possessed by other accountants in your area.

Have to show proximate cause, meaning they have to show that you CAUSED the damages.

Client has damages

Question 5

Defenses in negligence:

Answer 5

Statute of limitations (usually 2 years)

Comparative Negligence: May be reduced carelessness

Disclaimer CAN NEVER be in the contract.

Question 6

What are the fraud elements?

Answer 6

False representation of fact

Misrepresented facts were material

Knew or recklessly disregarded the falsity

Question 7

What are the two types of fraud:

Answer 7

1) Knowledge of the fraud- Actual Fraud
2) Recklessness- Constructive Fraud

D intended to and did induce reasonable reliance

Punitive damages- Fraud case

Question 8

Fraud defenses:

Answer 8

Statue of limitations: 4 years

Note: Fraud is also a basis for criminal prosecution

Question 9

Breach of contract to third party beneficiaries, who can sue?

Answer 9

1) Intended creditor beneficiaries (can sue)
2) Intended donee beneficiaries (can sue)
3) Incidental beneficiaries (can’t sue)

Jill sets up a trust for Hal, hiring Ed to give tax advice. Ed gives erroneous advice in breach of contract, costing Hal money. Hal may sue Ed as 3PB.

Question 10

NEGLIGENCE:

Accountants are generally liable to one or a limited class of no clients when:

Answer 10

1) The information is supplied to a client is for the benefit of this limited class (i.e. a bank or investor) and,
2) The information will influence third parties in a specific transaction or type of transaction

Question 11

FRAUD:

Fraudsters are liable to all persons they can reasonably foresee will be injured by their false representations or omissions.

Answer 11

TRUE!