Midterm Flashcards
Accountants are subject to three main types of liability under contract law:
Negligence
Breach of Contract
Fraud
An Accountant is liable for negligence if
Accountant failed to exercise care of a competent, reasonable professional that causes loss/injury to client.
GAAP & GAAS when it comes to negligence
They are minimum duty of care standards
Accountant steps to avoid potential liability of negligence:
Qualified opinion
Disclaimer (must be specific)
If unaudited, must be clearly marked
Actual Fraud
Intended Fraud
Constructive Fraud
Unintended Fraud
Three approaches to third-party liability:
Privity
Restatement
Reasonably Foreseeable users
Privity
Accountant Friendly, minority
Very narrow group may hold accountant liable: Third parties in privity of contract (known purpose, known party, and accountant must agree)
Restatement
In the middle, majority
Third parties who were known recipients or in a class of known recipients of accountant’s work
Reasonably Foreseeable Users
Not Accountant Friendly, minority
Anyone can sue the accountant as long as they are reasonably foreseen
Working papers
Various documents used and developed during audit. Accountant is legal owner, but client may access at any time.
Accountant-client privilege existing
Does not exist under federal law, but some states have found that there is a limited version.
Attorney-client privilege & Accountants
Accountants can be used for the purpose of seeking help, must keep information confidential.
Securities Act of 1933 Section 11
Accountants are liable to security purchasers for misstatements and omissions of material facts made in statements filed with the Securities and Exchange Commission (SEC)
Don’t have to prove you relied on this
Securities Act of 1933 Section 15
Extends liability to controlling persons when a Section 11 violation occurs (Ex. Corporate Directors)
Don’t need involvement
Defenses to 1933 Act Liability
Must at least live up to GAAP and GAAS and provide evidence of due diligence.
Securities Exchange Act of 1934 Section 18
Accounts liable for fraudulent statements made in documents filed with the SEC. Must show the fraud.
Defenses to Section 18 of Securities Exchange Act of 1934:
Accountant’s good faith is a defense
Good faith is disproven by:
-Scienter (Accountant acted knowingly illegally)
-Reckless Conduct
-Gross negligence
Private Securities Litigation Reform Act (PSLRA) of 1995
Requires accountants to use adequate procedures when performing audits to detect any illegal acts of the company being audited.
If accountant stays silent, they’re aiding & abetting
Aiding & Abetting
Helping with a crime
Sarbanes-Oxley Act of 2002
Created the Public Company Accounting Oversight Board (PCAOB) to limit fraud
Dodd-Frank Act of 2010
Creates Financial Stability Oversight Board with powers to monitor various financial proposals and their accounting methods
Amends and strengthens Sarbanes-Oxley Act.
How to prove fraud
-Accountant misrepresented a material fact
-Accountant acted with intent to deceive
-Client justifiably relied on the misrepresentation
-Client suffered an injury by relying on the fraudulent information
Intellectual Property
Property that results from one’s mind and creative efforts, rather than physical efforts.
Trademark
A distinctive nonfunctional mark, word, design, picture, or arrangement used by a producer in conjunction with a product that tends to cause a consumer to identify the product with the producer. Ex. McDonals Gold Arches
Trademark process
Trademarks must be registered with U.S. Patent and Trademark Office to be protected in interstate use.
Remedies for trademark infringement:
Money damages
Injunction
Service Mark
Mark used in conjunction with a service
Product trademark
Mark affixed to a goods, its packaging, or its labeling
*Collective Mark
Mark identifying producers as belonging to a larger group (Ex. Trade Union)
Certification Mark
Mark licensed by a group
*USPTO Trademark Registration
*Registrant summits drawing and evidence on first use
PTO Registers unless mark is generic, descriptive, immoral, deceptive, disparaging, etc.
*Color as a Trademark
Supreme Court in 1995
Color can act as a symbol that has developed secondary meaning (customers identify Qualitex’s green color) and identifies the product’s source
Preliminary Injunction
Order the poser to stop copying during court process. Must demonstrate you will win and you’re the good guy.
*Does economic power matter of either brand in a trademark case?
Economic power DOESN’T MATTER
Trade Dress
A product’s overall appearance and image
*Trade Dress Protections
Same protection as a trademark
Must prove three things to win a trade dress infringement claim:
-Trade dress is primarily nonfunctional
-Trade dress is inherently distinctive or has acquired a (recognized) secondary meaning
-Alleged infringement creates a likelihood of confusion
*Relationship between Trademark dilution and Trademark Infringement
They are NOT THE SAME
Dilution additionally requires that the mark be famous and does not require a showing of consumer confusion.
Trademark dilution
When something is very similar to a famous trademark.
Trademark infringement
When something takes sales and causes confusion.
Copyright
Protects fixed form of the expression of an original, creative idea
Test for enforcing copyright associated with utility item:
-The design must be separately identifiable
-Capable of existing independently (out of context of the utility item)
-Must be original
Remedies for Copyright infringement:
Injunction
Money damages (only if the work is registered)
Who owns employee-created copyright works?
Employer usually owns the copyright rights, but it is usually covered in the job agreement.
Fair-Use Doctrine
Most common defense against copyright infringement.
Provides that a person may reproduce a portion of copyrighted work for purposes of criticism, comment, news reporting, teaching, scholarship, research, and MAYBE parody.
Are parodies protected under fair use?
If it is transformative
What determines if something is protected under fair use?
-Purpose and character of use
-Nature of copyrighted work
-Amount used
-Effect on market
No Electronic Theft Act 1997
Punished people to infringed on copyright who didn’t make a profit from it.
Digital Millenium Copyright Act
Outlaws manufacture, sales, or distribution of encryption-breaking devices that can be used to illegally copy software.
Patent
A product, process, invention, machine, or plant produced by asexual reproduction
Patent Requirements:
-Subject matter must be patentable
-Object muse be novel, useful, and non obvious
Remedies for patent infringement:
-Money damages
-Injunction
Venue considerations
Sophisticated judges; juries that tend to give big damages awards
America Invests Act 2011
First person to file a patent has the rights to the invention
Made it easier and more affordable for small businesses and sole entrepreneurs to apply for patents.
Trade Secrets
Process, product, method of operation, or information that gives a businessperson a competitive advantage
Remedies for trade secret infringement:
-Money damages
-Injunction
The Uniform Commercial Code
A statutory source of U.S. contract law involving sale of goods
Article 2 of the UCC and common law relationship
When Article 2 is silent on an issue of sales contract information or interpretation, common law rules apply.
UCC article 1
General provisions
UCC article 2
Sales
UCC article 2A
Leases
UCC Article 3
Negotiable instruments
What happens if a state has passed statutory law regarding contracts?
It always overrules common law
Types of contracts:
-Goods
-Services
-Real property (Ex. House)
-Intangible property (shares of a company)
Sales
Passing of title from seller to buyer for a price
Goods
Tangible things that can be moved (Ex. Cars, furniture, electronics)
Not real estate or services
Are items take from the land goods or real estate?
Goods if removed by owner
Real estate if removed by buyer
*Mixed goods and services contracts
Contracts that include both goods and services
*Predominant Purpose
UCC applies to a mixed contract if goods are predominant part of transaction
Merchant
Buyers OR Sellers who
-Deal in goods of the kind involved or
-By occupation, represent themselves as having knowledge and skill unique to goods involved in transaction or
-Employ a merchant as a broker, agent, or other intermediary.
Lease
Transfer of right to possession and use of goods for a term in return for consideration
Lessor
Person who transfers right to possession and use of goods under lease
Lessee
Person who acquires right to possession and use of goods under lease
Consumer leases
Lease for personal use of goods valued under $25,000
Finance leases
Three parties
Bank or finance company acquires title and then leases goods to the lessee.
UCC when it comes to contract formation
UCC is more relaxed and flexible. Contracts for sale or lease of goods may be made in any manner sufficient to show agreement.
UCC when it comes to contract formation OFFER AND ACCEPTANCE
-Offers valid even if some terms are left open
-Mirror-image rule does not strictly apply
-Mutual consideration is required
-Allowed to modify with no consideration
UCC when it comes to open terms
Under the UCC, court will fill in certain terms an offer leaves open.
Merchant’s Firm Offer:
-Made by merchant
-Offer in writing
-Assurances it will remain open for up to three months
-Remains open despite lack of consideration for keeping it open.
If firm offer states no expiration time,
UCC supplies a three-month irrevocability period
Under UCC, Offeree may accept an offer by…
Any reasonable means of communication
Under UCC, if the last set of negotiations is not specifically rejected,
Then the last terms standing are the ones that apply to the transaction.
UCC assumes terms found in the battle of the forms are
Part of the contract, whether expressly agreed to or not.
Under UCC Statute of Frauds, Contracts for sale of goods must be in writing if goods valued at
$500 or more
Under UCC Statute of Frauds, lease contracts must be in writing if lease payments are
Over $1,000
Exceptions to UCC Statute of Frauds:
-Buyer/lessee ordered goods made to meet specific needs.
-Goods aren’t suitable for sale/lease in ordinary course of business
-Seller/lessor has substantially begun manufacture of goods or made commitments for their procurement
Between merchants, statue of frauds is satisfied by
A writing by either party sent to the other party if the recipient does not object within 10 days (even if recipient doesn’t acknowledge)
Between non merchants, statue of frauds is satisfied by
Writing
Parol Evidence
Info from outside a written contract
Parol Evidence is admissible in a legal dispute regarding a contract if:
-The additional terms it provides are consistent with the contracts terms or
-The evidence helps in interpreting the agreement (including Course of performance, Course of Dealing, or Usage of trade)
Course of performance
Previous conduct of the parties regarding the contract in question
Course of dealing
The way the parties have interacted in past transactions
Usage of trade
The way others in a specific place, vocation, trade, or industry usually conduct business.
Unconscionable agreement
An agreement so unfair or one-sided the court refuses to enforce it.
Court can either reject or remove the unfair terms
Contracts for the International Sale of Goods
United Nations treaty governing International business-to-business sales contracts
Why Contracts for the International Sale of Goods is important:
-Governs international sales contracts
-Provides clarity, predictability, and uniformity for global business.
Trump Case
Trump put back on the ballet in Colorado because Section 3 of the 14th Amendment was enacted after the civil war and the Colorado Supreme Court had no authority to take that step.
The justices in the trump case
All agreed but liberal judges had a dissent talking about the problem of Trump. Amy Coney Barrett talked about not disagreeing and keeping the country unified.
