CPA Legal Liability

Question 1

Privity

Answer 1

Only a party to the contract can sue under a contract theory.

Question 2

Breach of contract

Answer 2

CPA does not fulfill terms of his engagement

Question 3

Damages to breach of contract

Answer 3

Client entitle to compensatory damage - sufficient money to compensate for the contract not having been performed) If breach is material, no payment to the CPA

Question 4

Tort

Answer 4

Negligence, gross negligence and fraud.

Question 5

Negligence

Answer 5

Failure to exercise reasonable care- duty is owed to clients and intended third party beneficiaries. Damage must have been caused by the CPA’s negligence.

Question 6

Gross Negligence and Fraud

Answer 6

Acting in bad faith, intentional mispresentation. Having the intent to deceive - scienter - actual fraud. Gross negligence is not with scienter but withe acting recklessly. Duty is owed to everyone that can prove it.

Question 7

Defense

Answer 7

Negligence - followed applicable GAAP/GAS standards or did due diligence. Gross negligence/ Fraud - lack of scienter, acted in good faith.