Legal Duties & Responsibilities Flashcards
What is gross negligence?
Hint: Reckless
A reckless disregard for the truth or reckless departure from due care is constructive fraud or gross negligence.
Gross negligence is a tort that arises when a CPA recklessly departs from the standards of due care. There is no requirement of privity in a gross negligence case. The CPA can be held liable by anyone who relied on the resulting misinformation. This is also called constructive fraud. A fault standard (recklessness) is involved here.
What is ordinary negligence or just negligence?
In ordinary negligence (liability under a negligence theory) liability is limited to clients and, at most, third parties who will foreseeably rely on the information. A fault standard (recklessness) is involved here.
What is strict liability?
Strict liability imposes liability without fault. In strict liability, the CPA would be liable whether reckless or careful.
Strict liability means liability regardless of fault or culpable conduct and is a lower standard than reckless departure from due care.
What is privity?
In privity, liability for breach of contract would extend to those in privity of contract with the CPA and would not extend to unknown third parties.
What is scienter?
An intent to deceive. Required in common law fraud.
What are the 5 elements of fraud?
A CPA who commits fraud is liable to anyone who can prove the case for fraud. Fraud has five elements: (i) a misrepresentation of material fact; (ii) intent to deceive; (iii) actual and justifiable reliance by the plaintiff on the misrepresentation; (iv) an intent (also known as scientists) by the defendant to induce plaintiff’s reliance on the misrepresentation; and (v) damages.
Who can accuse a CPA of a criminal act?
Only the government can impose liability for criminal acts. Private parties must rely on a tort theory to hold a CPA liable.
What is a defense to negligence?
Contributory negligence
What are the four elements that a plaintiff must show to make a case for negligence against a CPA?
The plaintiff must show that the defendant owed a duty of care to the plaintiff, the defendant breached that duty by failing to act with due care, the breach caused the plaintiff’s injury, and damages. (owing a duty to the plaintiff, breaching that duty, causation, and damages
What is specific performance?
Specific performance (an order to perform as agreed) is available only in a contact for the sale of rare or unique property.
What is the “Ultramares” rule?
Ultramares limits the accountant’s liability for negligence to: (i) parties in privity and (ii) intended third party beneficiaries; parties who are merely “foreseen” cannot recover.
Can a bank file a negligence suit against the CPA?
Although a CPA generally is liable to third parties only for fraud or constructive fraud (gross negligence), where the CPA can be liable to the third party for mere negligence (the CPA owes the third party a duty of care since the third party is an intended beneficiary of the engagement). An action or gross negligence requires both reliance on a misstatement and negligence.
What is a defense to negligence?
The exercise of reasonable care is proof of the lack of negligence
What is constructive fraud?
Constructive fraud has the same elements as actual fraud, except instead of intentionally deceiving, the defendant acts recklessly. Constructive fraud is sometimes called gross negligence.
