Chapter 44: Accountant's Legal Liability
Terms
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- Contract Liability
- the employment contract between an accountant and her client is subject to the general principles of contract law
- Engagement
- binding contract for an accountant's services
- Explicit Duties
- the accountant is bound to perform all the duties she expressly agrees to provide
- Implicit Duties
- the accountant impliedly agrees to perform the contract in a competent and professional manner
- Third-party Beneficiary
- noncontracting party whom the contracting parties intend to receive a primary benefit; contract liability extends to the client/contracting party and to third-party beneficiaries
- Tort
- a private or civil wrong or injury other than a breach of contract
- Negligence
- an accountant is liable for failing to exercise the degree of care a reasonably competent accountant would exercise under the circumstances
- Privity
- contractual relationship
- Foreseen Users
- those who the accountant knew would use the work or those who use the work for a purpose of which the accountant knew
- Fraud
- an accountant who commits fraudulent acts is liable for both compensatory and punitive damages to any person whom he should have reasonably foreseen would be injured
- Accountant-client privilege
- not recognized by the common law or federal law, although some states have adopted statutes granting some form of privilege
- Civil Liability
- Section 11 imposes express civil liability on accountants if the financial statements they prepare or certify for a registration statement contain any untrue statement or omit any material fact, unless the accountant proves his due diligence defense
- Criminal Liability for Section 11
- a willful violator of Section 11 is subject to fines of not more than $10,000 and/or imprisonment of not more than five years
- Section 18
- imposes express civil liability on an accountant who knowingly makes any false or misleading statement about any material fact in any report, document, or registration filed with the SEC
- Rule 10b-5
- an accountant is civilly liable under this rule if he acts with scienter in making oral or written misstatements or omissions of material fact in connection with the purchase or sale of a security
- Scienter
- intentional or knowing conduct
- Criminal Liability for Section 18 or Rule 10b-5
- subject to fines of not more than $5 million and/or imprisonment of not more than 20 years