Common Law Liability to Third Parties

Question 1

A CPA is liable to a foreseeable party if

Answer 1

The CPA committed Gross negligence or Fraud

Question 2

What is the difference between Foreseen party and foreseeable party

Answer 2

Foreseeable party is not identified to the CPA

Foreseen party is identified

Question 3

In most states a foreseeable third party

Answer 3

will not be able to recover damages BUT a foreseen party will be.

Question 4

What is Ultramares rule?

Answer 4

limits the Accountant’s liability only to parties who primarily benefit from Financial Statements. (Parties in Privity)

Question 5

In a common law case of Negligence/Breach of contract against the Accountant by a 3rd party - What are viable defenses?

Answer 5

1) Lack of Privity

2) Audit was performed according to GAAS

Question 6

In a common law case of Fraud against the Accountant What is a viable defense

Answer 6

Did not have actual or constructive knowledge of the mistatements

Question 7

To establish common law liability against the accountant based on negligence what do you need to prove?

Answer 7

1) Accountant had to exercise due care
2) Accountant breached due care
3) Damages
4) casual relationship exists between fault and resulting damages