Malpractice Liability Flashcards
What are the 4 main topics of malpractice liability?
- Breach of contract
- Negligence liability to clients
- Fraud
- Negligence liability to third parties
What is implied agreement?
Per the law, you cannot perform in a non-negligent manner.
An accountant is generally not liable to detect fraud unless:
- A normal audit would detect fraud
- Engagement letter states so
- Audit report states so
T/F - Accountants can avoid liability by disclaimers.
False
T/F - When there is a breach of contract, a client is entitled to punitive damages.
False. Only compensatory damages.
What are the elements for recovery in a negligence case?
- Duty
- Breach
- Damages
- Proximate cause
T/F - Punitive damages are not allowed in a mere negligence action.
True. Compensatory damages for reasonably foreseeable injury is only allowed.
What is proximate cause?
It when the accountant’s negligence is the direct cause of injury.
What are the 2 elements of proximate cause?
- “But for” causation
2. Reasonable foreseeability
What are the elements of fraud?
- Misrepresentation/Omission of fact
- Materiality
- Knew or recklessly disregarded falsity
- Reasonable reliance
- Damages
Actual fraud =
Knowledge (scienter) - accountant knew about the falsity
Constructive fraud =
Reckless disregard or gross negligence
Describe the Reasonable Foreseeability Approach to
accountant liability.
The accountant is liable to whomever he/she can
reasonably foresee may use the financial statements
he/she certifies or prepares.
Describe the Privity Approach of Ultramares v. Touche to
accountant liability.
The accountant is liable only to those with whom he/she
is in privity of contract.
List the three primary approaches to accountant liability.
- The Privity Approach of Ultramares v. Touche
- The Restatement “Limited Class” Approach
- The Reasonable Foreseeability approach
