Federal Statutory Liability Flashcards
The Ultramares decision is a leading case that helps define when a CPA is liable to different parties. If a CPA has committed negligence, under this decision the CPA is liable to which of the following parties?
Parties for negligence that were in privity of contract with the CPA, ie. Client and 3rd party beneficiary, not foreseeable parties
parties for negligence that were in privity of contract with the CPA
Lack of scienter
failed to detect material misstatements included in its client’s financial statements.
Larson’s unqualified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client. Larson knew that its opinion and the financial statements would be used for this purpose
Best Defense: did not have actual or constructive knowledge of the misstatements.
fraudulently performs an audit of a corporation’s financial statements will
Probably be liable to any person who suffered a loss as a result of the fraud.
In most jurisdictions, the CPA will be liable if foreseeable users rely on the fraudulently prepared statements and suffer a loss. This is true whomever the plaintiffs may be, so long as they can prove reliance and loss and that they are foreseeable users.
IPO: In a suit by a purchaser against Larson for common law negligence, Larson’s best defense
In a common law negligence suit, the plaintiff attempts to show that the CPA did not use the care of a reasonable accountant in the circumstances. By showing the audit conformed to GAAS, a CPA shows strong evidence of having acted reasonably
CPA will most likely be negligent when the CPA fails to
Correct errors discovered in the CPA’s previously issued audit reports.
CPA fraudulently issued unqualified opinion for A give to bank 1, but ultimately gave to bank 2
Bank 2 win coz this is a fraud case, Able is generally liable to all “reasonably foreseeable” victims of its misstatements. As applied in a majority of jurisdictions, this rule would likely lead to liability here. It is reasonably foreseeable to CPA that a client needing money would show these audit reports to potential investors.
Assuming that the AICPA is presuming application of the most common rule - the Restatement “limited class” approach - and assuming further that the accounting firm knew that its client was going to use the report to obtain a loan from a bank
Can sue the accounting firm for the loss of the loan because of negligence.
Zing awarded a $176 million contract to provide information services to CCB to Albany Co., a privately held company on whose behalf Watkins had been acting. Albany’s books carried the payments made by Watkins as legitimate business expenses paid to a third-party consultant
Albany is in trouble under the FCPA’s antibribery provisions.
Bribing an official of a company controlled by the Chinese government in exchange for a contract is the essence of what the FCPA’s antibribery provisions are trying to stop.
under the FCPA’s accounting provisions. Your advice would be accurate if it indicated that Cassini, a publicly traded U.S. company, must devise internal accounting controls sufficient to provide “reasonable assurance” that:
Transactions are executed in accordance with management’s general or specific authorization &
Access to assets is authorized.
Lewis & Clark, CPAs, rendered an unqualified opinion on the financial statements of a company that sold common stock in a public offering subject to the Securities Act of 1933. Based on a false statement in the financial statements, Lewis & Clark are being sued by an investor who purchased shares of this public offering. Which of the following represents a viable defense?
The false statement is immaterial in the overall context of the financial statements.
Which of the following is(are) true concerning internal auditors?
Internal auditors are required to be independent of the activities they are auditing, not the entire firm since they are employees of that firm. Although some internal auditors do hold a CPA license, they are not required to be CPAs.
In an action for negligence against a CPA, “the custom of the profession” standard is used at least to some extent in determining whether the CPA is negligent. Which of the following statements describes how this standard is applied?
Despite a CPA’s adherence to the custom of the profession, negligence may nevertheless be present.
