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Chapter 32 – Professional Liability

Chapter 32

Professional Liability

I. Key Terms

Accountant (p. 787) National rule (p. 808)

Actual privity (p. 794) National standard (p. 808)

Adverse opinion (p. 789) Near-privity (p. 795)

Attorney-client privilege (p. 802) Negligence (p. 793)

Audit (p. 788) Negligent credentialing (p. 810)

Auditor (p. 788) Negligent retention (p. 811)

Certified public accountant Ostensible authority (p. 810)

(CPA) (p. 788) Professional (p. 787)

Code of Professional Ethics (p. 789) Public accountant (PA) (p. 788)

Cost of repair rule (p. 800) Public Company Accountability

Disclaimer (p. 789) Oversight Board (PCAOB) (p. 790)

General consent (p. 806) Qualified opinion (p. 789)

Generally accepted accounting Same state locality rule (p. 807)

principles (GAAP) (p. 788) Sarbanes-Oxley Act (p. 790)

Generally accepted auditing Similar locality rule (p. 807)

standards (GAAS) (p. 789) Similar practitioner rule (p. 808)

Health Insurance Portability and Staff privileges (p. 810)

Accountability Act (HIPPA) (p. 808) True locality rule (p. 807)

Informed consent (p. 806) Type one arrangement (p. 792)

In-house attorney (p. 805) Type two arrangement (p. 792)

Locality rule (p. 807) Unqualified opinion (p. 789)

Malpractice (p. 793) Work product privilege (p. 802)

II. Learning Objectives

1. Distinguish between a certified public accountant and a public accountant.

2. Explain generally accepted accounting principles and generally accepted auditing

standards.

3. Identify the types of auditing opinions that can be issued by auditors.

4. Distinguish between actual privity and near-privity in accounting.

5. Outline the registration requirements imposed on architects by the state.

6. Identify the duties that an architect owes to his or her clients.

7. Determine the duties that an attorney owes to his or her clients.

8. State the standard of care used to judge health care professionals.

9. Contrast the locality rule with the national standard.

10. Explain the limits of hospital liability for the torts of independent contractor.

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Chapter 32 – Professional Liability

III. Major Concepts

32-1 The Liability of Accountants

Accountants are business professionals who can plan, direct, and evaluate the complex

financial affairs of their clients. The most common types of accountants are certified

public accountants and public accountants. Accountants must follow generally accepted

accounting principles. Auditors must follow generally accepted auditing standards. They

must also follow the Code of Professional Ethics of the AICPA. Accountants may be

liable to both their clients and third parties. Making a determination of the extent of

liability to third parties depends on understanding the nature of actual privity and

near-privity.

32-2 The Liability of Architects and Attorneys

Architects and attorneys are considered professionals and are

regulated by the state. Architects may nd themselves liable to clients

and to third parties, whereas attorneys are generally responsible to

their clients alone. Both architects and attorneys must exercise due

care and skill in carrying out their professional duties.

32-3 The Liability of Health Care Providers

The term health care provider includes physicians, dentists, chiropractors, podiatrists,

nurses, nurse practitioners, nurse technicians, radiologic technologists, respiratory

therapists, and laboratory technicians. Like other professionals, health care providers

must act with the same skill, care, and level of knowledge that a reasonable health care

professional would display in a similar situation.

32-4 Hospital Liability

Hospitals can be held liable for the negligence of a physician, even if that physician is

not an employee of the hospital. The granting of staff privileges can be troublesome for

the hospital if the staff physician becomes the defendant in a malpractice lawsuit,

because the patient can sue both the physician and the hospital. Two legal theories that

have been used successfully to add the hospital to the list of defendants in a malpractice

lawsuit are ostensible authority and negligent credentialing.

IV. Outline

I. The Liability of Accountants (41-1)

A. The Regulation of Accounting and Auditing

1. An accountant is a professional who can plan, direct, and evaluate a client’s financial

affairs.

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2. The nature of accounting means that an accountant’s activities may have an impact on

investors who exist outside the accountant’s inner circle of clients.

3. Accountants are regulated by the state and federal government.

B. Accountant Registration

1. The regulation of accounting is part of the state’s police power.

2. Certified public accountants have met certain age, character, education, experience,

and testing requirements.

3. Public accountants are accountants that work for a variety of clients but are not

certified.

4. State registration requirements are designed to shield citizens against people who

practice accounting without the education or experience necessary to do a competent

job.

C. Accounting and Auditing

1. Auditing

a. An audit is an examination of the financial records of an organization to

determine whether those records are a fair representation of the actual financial

health of the institution.

b. An auditor is an accountant who conducts an audit.

c. Auditors face two levels of accountability.

(a) The first level of accountability is the organization which is being audited

(b) The second level of accountability is to the investors, lenders, shareholders,

and others who rely on the financial statements made by the auditors.

2. Accounting Principles

a. An independent group known as the Financial Accounting Standards Board

(FASB) has established generally accepted accounting principles (GAAP).

b. Those rules are followed by the American Institute of Certified Public

Accountants (AICPA) and outline the procedures that accountants must use in

accumulating financial data and in preparing financial statements.

3. Auditing Standards

a. The Auditing Standards Board of the AICPA has set up generally accepted

auditing standards (GAAS).

b. There are ten auditing standards with three relating to the auditors, three related to

their work in the field, and four related to the opinions that they issue.

4. Types of Opinion

a. An auditor’s opinion may be unqualified or qualified.

(a) An unqualified opinion concludes that the financial records of the company

are an accurate reflection of the company’s financial status.

(b) A qualified opinion means that the books represent the company’s financial

health as of a given date.

b. Auditors may qualify an opinion in one of two ways.

(a) One type of qualified opinion is the “subject to” opinion in which auditors

state that the books represent the company’s financial health subject to some

uncertainty which may affect the company in the future.

(b) The second type of qualified opinion is an “except for” opinion in which

auditors state that the financial statements are an accurate reflection of the

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company’s financial health except for some minor deviation from GAAP not

serious enough to warrant an adverse opinion.

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c. An adverse opinion is rendered when the deviations from GAAP are so serious

that an unqualified opinion is impossible and a qualified opinion is not justified.

d. A disclaimer declares that the auditor has decided not to give any opinion on the

company’s financial record.

5. Ethical Rules of Accountants

a. The AICPA has established a Code of Professional Ethics outlining rules that

govern the ethical conduct of accountants.

b. Those rules are frequently used by the courts to determine whether an accountant

has breached a duty to a client in nontechnical matters not covered by GAAP and

GAAS.

D. The Sarbanes-Oxley Act

1. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board

(PCOAB).

a. The task of that board is to make certain that correct, unbiased, and

comprehensive data finds its way to potential investors so they can make

informed decisions about investment opportunities.

b. The board has responsibility for the supervision of public accounting firms.

2. The Act requires the registration of all public accounting firms that are involved in

auditing publicly traded corporations.

3. The Act specifically prohibits conflicts of interest that might arise when former

auditors are hired by a company and that company is still being audited by the same

firm that once employed the former auditor.

4. The Act also requires that corporate audit committees receive timely and

comprehensive reports from the accounting firm that is auditing the company.

E. Conflicting Jurisdictional Problems

1. Problems may arise when authorities that regulate auditors and accountants do not

agree.

2. Problems are also likely to arise when authorities that regulate auditors and

accountants and authorities that regulate other professionals, such as lawyers, do not

agree.

F. The Dodd-Frank Act

1. In Relation to the Accounting Profession

a. Congress included provisions in the Dodd-Frank Act for dealing with problems

peculiar to the accounting profession.

b. The Dodd-Frank Act is a complex statute covering over 2,000 pages of text.

2. Securities Exchange Commission Jurisdiction

a. The Securities and Exchange Commission (SEC) has been charged with

investigating the information that is given to investors.

b. The SEC will also look at the possibility of adding a Private Rights Action section

to the law.

3. Government Accountability Office/Public Company Accounting Oversight Board

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a. The GAO has been charged with investigating how to regulate financial planners.

b. The PCAOB has been empowered to develop a plan to regulate and register

auditors of nonpublic broker dealers.

G. Duties Owed by the Accountant to the Client

1. In many accounting arrangements, the levels of interaction among the parties are

more complicated than in an ordinarily straightforward contractual arrangement.

2. Within the law of accounting, multiple overlapping duties exist.

H. Type One Accounting Arrangements

1. In a standard type one accounting arrangement, the accountant enters into an

agreement with a client as a financial manager or tax preparer.

2. If the accountant fails to fulfill the terms of the contract existing between the parties,

the client could bring a breach of contract suit.

3. An accountant might also be liable to clients under common law for negligence and

fraud.

4. Negligence in Type One Arrangements

a. The duty of due care means that the accountant must perform the job with the

same skill and competence that a reasonable accounting professional would use in

the same situation.

b. Negligence, often called malpractice, occurs whenever an accountant fails to meet

his or her duty of due care.

c. Violating GAAS or GAAP may lead to a charge of malpractice.

d. Just because, however, an accountant follows the GAAS or GAAP guidelines

does not automatically lead to his or her vindication in a court of law.

5. Fraud Involving Type One Arrangements

a. If an accountant deliberately misrepresents the client’s financial condition or in

some way deliberately falsifies a statement or an auditing report, that accountant

will be liable to the client for fraud.

b. Accountants may also be liable for fraud if they compile a financial report or

conduct an audit recklessly.

c. The plaintiff must demonstrate that he or she actually relied on the false

statements or reports.

d. In these types of cases, the plaintiff may be awarded punitive damages.

I. Type Two Accounting Arrangements

1. A type two accounting arrangement arises when the accountant has a type one

arrangement with one party that leads to a type two arrangement with at least one

other party.

2. Under common law, an accountant can be held liable to some third parties who are

damaged by a negligently prepared financial statement.

3. Accountants are also liable to some third parties if they deliberately make fraudulent

statements.

4. Negligence / Malpractice and Type Two Industry Arrangements

a. Rights are not clear cut.

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b. Under the Cardoza Standard, unless the parties have actual privity, that is, privity

that results from a type one accounting contract, liability for negligence (aka

malpractice) does not exist—period.

c. Under the near-privity standard in regard to negligence, the plaintiff must show

that (a) the accountant knew that the reports would be shown to a third party, (b)

the accountant knew the identity of the third party and that he or she (or it?)

would rely on the report, and (c) the accountant’s conduct revealed that he or she

had knowledge of the third party’s reliance.

d. Under the near-privity plus or specifically foreseen third-party standard in regard

to negligence, most states have extended the near-privity rule even further,

holding that accountants are also liable to the limited class of third parties that is

specifically foreseen (not just actually known but specifically foreseen) when the

financial statement is drawn up.

e. Under the near-privity plus-2 or the reasonably foreseeable third-party standard in

regard to negligence, some courts have adopted a test that depends on whether the

plaintiff in the case was foreseeable (not just foreseen but foreseeable) as a

possible recipient of the accountant’s report.

f. Some courts may be said to use a type of Platonic Stabilizing Standard in regard

to negligence that balances the various liability standards and takes into account

the individualized nature of each case.

g. An accountant who prepares a fraudulent financial statement is liable to anyone

who can be reasonably foreseen as relying on that statement.

J. An Accountant’s Statutory Liability

1. Under certain circumstances the Securities Act of 1933 allows purchasers who have

lost money after buying corporate stock based on misleading or false registration

statements to sue the accountants who prepared the statements.

2. The Securities and Exchange Act of 1934 was designed to prevent the fraudulent

filing of various documents with the SEC and the fraudulent manipulation of the

securities market.

3. Most states have also enacted statutes, referred to as blue sky laws, regulating

activities as they relate to the sale of stock.

II. The Liability of Architects and Attorneys (41-2)

A. The Liability of Architects

1. Under its police power, the state can regulate the conduct of architects.

2. An architect owes a duty to exercise due care and skill in carrying out professional

duties.

3. If a final version of a building differs from an original plan because of an error caused

by an architect’s failure to use due care and skill, the architect may have to reimburse

the client for any extra money spent to correct the error under the cost of repair rule.

4. If the design is defective and the structure is unusable for its originally intended

purpose, the court may declare that the architect owes the client the difference

between the market value of the building as it stands and the market value of the

intended structure.

5. If the architect has failed to exercise the appropriate standard of care resulting in

property damage or personal injury, then the architect may have to compensate the

victims.

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B. The Liability of Attorneys

1. Attorneys are regulated by the state’s police power.

2. The American Bar Association has established a set of ethical standards entitled the

ABA Model rules of Professional Conduct which have been officially adopted in 47

states.

3. An attorney has the duty to represent clients with good faith, loyalty, and due care or

the attorney may be liable for malpractice.

4. The attorney has the duty to act in good faith, which means that the attorney’s duty is

to act in the best interests of the client.

5. The attorney also has a duty of loyalty to protect the client and to make certain that

the client receives advice and representation that is free of conflicting interests.

6. Unless a waiver occurs, the attorney-client privilege guarantees that information that

passes between clients and their attorneys will remain secret.

7. The work product privilege protects documents and other materials prepared in

anticipation of litigation.

8. The work product privilege may be waived or a judge may rule that the other party

has a substantial need for the information and cannot obtain it in some other way.

9. An attorney owes a duty of due care to clients meaning that in performing work for a

client, an attorney must exercise the same skill and care that would be expected of

other attorneys in the same situation.

C. Steps in a Legal Malpractice Case

1. The plaintiff must first show that the attorney owed a duty to the plaintiff.

2. Second, the attorney must have breached the duty owed.

3. Third, the plaintiff must show that the attorney’s questionable behavior caused

foreseeable resulting harm to the plaintiff.

4. Finally, the plaintiff must show that he or she suffered actual harm as a result of the

attorney’s breach of duty.

5. Attorneys are rarely held liable to third parties because the attorney’s responsibilities

are tied closely with the interests of the attorney’s client and that client alone, but

there are some restrictions in relation to an attorney’s interaction with third parties.

6. There are safeguards within the legal system which are designed to make certain that

attorneys do not file phony lawsuits, promote unwarranted legal arguments, conduct

unnecessary investigations, file unjustifiable motions, or make allegations that lack

evidentiary support.

7. Attorneys are not immune to criminal liability, especially when they act in collusion

with clients.

III. The Liability of Health Care Providers (41-3)

A. The Professional Status of Health Care Providers

1. Physicians as well as other health care providers such as dentists and nurses are

considered professionals.

2. They are regulated by the state, and most are also regulated by independent

professional organizations.

B. The Health Care Standard of Care

1. To avoid liability for the intentional tort of battery, health care providers must

frequently obtain the patient’s written consent.

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a. Upon entering a hospital, a patient automatically gives general consent for routine

tests and procedures; and although such consent is implied, many hospitals

require signed general consent forms.

b. When a diagnostic test or a procedure will be dangerous or painful, the treating

physician must obtain the patient’s informed consent after informing the patient

about the procedure and risks.

2. Health care providers might be vulnerable to charges of negligence if they do not

follow the appropriate standard of care.

3. To succeed in a negligence case against a health care professional, a patient must

show that the health care provider owed a duty to the patient that was breached.

4. In order to establish that the duty of care was breached, the plaintiff may refer to a

hospital’s policy and procedure manual, or to manuals or procedures used at other

hospitals.

5. Some states use some variation of the locality rule in determining whether the duty of

care was breached while others use a national standard.

6. A plaintiff must prove not only that the defendant’s conduct did not conform to

acceptable medical practices, but also that the failure to follow acceptable procedures

was the cause of the plaintiff’s injury.

7. Expert testimony is required to establish malpractice unless the action under

examination is within the common knowledge of all people.

C. Medical Records and the Patient’s Rights

1. With some exceptions, the Health Insurance Portability and Accountability Act

(HIPAA) ensures that individuals have the right to see their medical records and that

parents have the right to see the medical records of their children.

2. The Act also provides the right to obtain duplicates of the records.

D. The Patient Protection and Affordable Care Act

1. The Department of Health and Human Services has developed trial regulations

toward the creation of a system of coordinated health care institutions for Medicare

patients known as Accountable Care Organizations (AOCs).

2. The ACO program is administered by the Center for Medicare and Medicaid

Services.

3. To be certified, a new ACO must take responsibility for at least 5000 beneficiaries for

3 years.

IV. Hospital Liability (41-4)

A. Ostensible Authority and Hospital Liability

1. Ostensible authority is created when a hospital presents itself to the public-at-large as

a provider of health care services and in some way leads the patient to believe that a

physician with staff privileges is an employee of the hospital.

2. Since such representations indicate that the physician was an employee of the

hospital, the patient can add the hospital to the malpractice suit as a defendant.

B. Negligent Credentialing by Hospital Authorities

1. Negligent credentialing occurs if the hospital has retained a physician that the

governing body of the hospital knew or should have known was incompetent.

2. Another form of negligent credentialing occurs if a previously competent physician

with staff privileges loses that competence and the hospital governing body knows or

should have known about the changed circumstances, but takes no remedial action.

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C. Tort Reform and Litigation

1. In recent years some states have attempted to lessen the burden placed on hospitals by

ostensible authority and negligent credentialing.

2. Some states have statutes allowing a hospital to escape liability by posting notices

that inform patients of the independent status of staff physicians.

3. Some states have created a rebuttable presumption that says a hospital is presumed to

have properly credentialed staff physicians if the hospital is accredited by the Joint

Commission of Accreditation of Health Care Organizations.

V. Background Information

A. Cross-Cultural Notes

1. Issues involving medical malpractice very from country to country. An article titled

“Medical Malpractice: How Medical Lawsuits are Won Around the World” from the

Yale Journal of Medicine and Law is available at

http://www.yalemedlaw.com/medical-malpractice-how-medical-lawsuits-are-won-aro

und-the-world/.

2. A 2013 article by Benjamin Liebman titled “Malpractice Mobs: Medical Dispute

Resolution in China” addressing the surge in medical disputes in China and violence

involved is available from the Columbia Law Review at 113 Colum. L. Rev. 181.

Another article titled “Yinao: Protest and Violence in China’s Medical Sector”

addressing the issue is available from the Berkeley Journal of Sociology at

http://berkeleyjournal.org/2014/12/yinao-protest-and-violence-in-chinas-medical-sect

or/.

B. Historical Notes

1. While practicing law with his partner in Springfield, Illinois, Abraham Lincoln was

approached by a potential client who wished to press a claim involving a promissory

note against a widow. Before taking the case, Lincoln investigated the circumstances,

discovering that if his client won, it would financially ruin a widow and her six

children. Lincoln wrote the following refusal: “We shall not take your case, though

we can doubtless gain it for you. Some things that are right legally are not right

morally. But we will give you some advice for which we will charge nothing. We

advise a sprightly, energetic man like you to try your hand at making six hundred

dollars in some other way.”

2. Stephen Smith, one of the leaders of nineteenth-century American medicine, stated in

1860 that it was ludicrous “in our time when communication is so rapid, and books

and periodicals are abundant and cheap,” for a doctor to plead ignorance of generally

recognized medical knowledge.

C. State Variations

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1. In Nebraska, no partnership or limited liability company may use the title or

designation, “Certified Public Account” or “CPA,” unless such partnership or limited

liability company is registered with the state and is issued a permit which is not

revoked or suspended. Notification is to be given to the board regarding the

admission to or withdrawal of a partner from any partnership or a member from any

limited liability company that is registered.

2. Louisiana, Michigan, and Missouri are some of the states that have adopted

Restatement (Second) of Torts section 552, whereby negligent accountants are liable

to specifically foreseen and limited classes of persons for identifiable transactions.

3. The term “blue sky laws” comes from the words of a Kansas Supreme Court Justice

who wanted to protect investors from ventures with no more basis than “so many feet

of blue sky.” All states have state securities regulators. For more information on

state blue sky laws see “Did You Know…? Facts About Blue Sky Laws” available at

the FindLaw website at

http://smallbusiness.findlaw.com/business-finances/did-you-know-facts-about-blue-sk

y-laws.html.

D. Quotations

1. Neglect of duty does not cease by repetition to be neglect of duty.

— Lord Thomas J. C. Tomlin (1736–1812). British jurist

VI. Terms

1. The intent to mislead is often referred to by courts as scienter, Latin for “knowingly.”

VII. Related Cases

1. Florida required that all people sitting for the CPA exam be a resident for two years

before the exam. An applicant sued the state and won, the court ruling that the

two-year residency requirement was void and unreasonable. Mercer v. Hemmings,

170 So.2d 33 (Fl. 1964).

2. A Mississippi statute restricting the preparation of tax returns for compensation to

CPAs was held void as an unconstitutional exercise of police powers in Moore v.

Grillis, 39 So.2d 505 (Miss. 1949).

3. Dr. Thomas advised Truman to get a Pap smear but did not warn her of the dangers of

failure to have the test. The patient eventually developed cervical cancer and died.

Truman’s husband brought a wrongful death action against the doctor, arguing that he

had failed to disclose all the risks of not having the test. In Truman v. Thomas, 611

P.2d 902(Cal. 1980), the California Supreme Court held that the doctor should have

given the patient all “information material to her decision.” However, the court

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Chapter 32 – Professional Liability

remanded the case to the trial level so that a jury could determine whether the

consequences of failure to have a Pap smear were so well known that the doctor had

no general duty to disclose the risks to all patients.

4. In Vincent v. Devries, 193 Vt. 574 (2013), the Supreme Court of Vermont refused to

award damages for emotional distress in a legal malpractice action. The underlying

case involved a situation in which the defending lawyer’s client, the plaintiff in the

legal malpractice action, was attempting to avoid an alleged contract for the sale of

his home. The court assumed without deciding that Vermont law would follow a

modern trend of allowing damages for serious emotional distress in certain legal

malpractice situations and that the evidence in the case supported a claim for serious

emotional distress. The court went on to conclude, however, that the subject of the

defending lawyer’s representation of the plaintiff was not of the personal and

emotional nature type that would support an exception to the general rule of

disallowing recovery of emotional distress damages in the absence of physical

impact, substantial bodily injury, or sickness.

VIII. Teaching Tips and Additional Resources

1. The American Institute of Certified Public Accountants has a section addressing

disciplinary actions taken against accountants at

http://www.aicpa.org/_catalogs/masterpage/Search.aspx?S=disciplinary+action.

2. Extensive information from the U.S. Department of Health and Human Services

regarding the National Practitioner Databank, the database at which information is

collected regarding negative information on health care practitioners, including

malpractice awards, can be found at http://www.npdb-hipdb.hrsa.gov/.

3. The American Medical Association provides information about professional liability

cases at

http://www.ama-assn.org/ama/pub/physician-resources/legal-topics/litigation-center/c

ase-summaries-topic/professional-liability.page.

4. Discuss the legal implications of admissions and ask students their opinions on

whether physicians or other professionals who have made an error should apologize.

An interesting recent article titled “Explain a Medical Error? Sure. Apologize Too?”

from the Internet site of The New York Times is available at

http://www.nytimes.com/2008/01/01/health/views/01case.html?_r=1&oref=slogin.

Another article titled “Medical Errors Are Hard for Doctors to Admit, but It’s Wise to

Apologize to Patients” is available from The Washington Post at

https://www.washingtonpost.com/national/health-science/medical-errors-are-hard-for–

doctors-to-admit-but-its-wise-to-apologize-to-patients/2013/05/24/95e21a2a-915f-11e

2-9abd-e4c5c9dc5e90_story.html. What do students think about apologies in other

professions such as accounting, law, and the building professions?

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5. Ask students to research whether disciplinary actions against physicians in their home

states are reported online. For example, disciplinary actions against health

professionals in Tennessee can be researched at https://apps.health.tn.gov/Licensure/.

6. The Internet site of the Public Company Accounting Oversight Board with detailed

information regarding the board is available at http://pcaobus.org/Pages/default.aspx.

7. The American Institute of Architects has information regarding the field available on

its web site including a list of questions to address when meeting with a potential

architect at http://www.aia.org/components/media/AIAB028900?

dvid=&recspec=AIAB028900.

8. The Internet site for the American Hospital Association is at

http://www.aha.org/about/index.shtml. By clicking the tab “ Advocacy Issues”

extensive information regarding current issues on health care of interest to hospitals is

available.

9. The United States Department of Health and Human Services has extensive

information regarding the Health Insurance Portability and Accountability act

(HIPAA) available at http://www.hhs.gov/ocr/privacy/.

10. The American Bar Association shows common legal malpractice claims at

http://www.americanbar.org/publications/law_practice_home/law_practice_archive/lp

m_magazine_webonly_webonly07101.html.

11. The Illinois Bar Journal reports “Lawyer Sues after His YouTube Post of Client

Leads to Suspension” at

https://www.isba.org/ibj/2014/05/lawpulse/lawyersuesafterhisyoutubepostofclie.

Interestingly, the article reports that the attorney was found to have violated ethics

rules for posting a video of his client with the caption “Cops and Task Force Planting

Drugs.” The attorney involved testified that he initially thought the video showed

police planting drugs on his client. On closer examination, however, he realized it

showed his client had sold drugs to an undercover officer.

12. ABC news provides information on Bernie Madoff and other associated with the

scheme at a site titled “Anniversary Behind Bars: Where Are Bernie Madoff’s

Insiders?” at

http://abcnews.go.com/US/photos/anniversary-bars-bernie-madoffs-insiders-2754430

2/image-bernard-madoff-27544322.

13. Assign a short research paper on the regulations in your state for accountant

registration. Have students include in their reports the state requirements for CPAs

and public accountants.

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14. The AICPA and many accountants argue that, in lawsuits against accountants, courts

should not expect higher standards of conduct from the defendants than those

customary in the profession or than those of the GAAP and GAAS.

However, plaintiffs’ lawyers often successfully argue that professional standards and

customs are only admissible, not conclusive, evidence, and most courts do not

hesitate to require a higher standard of conduct than that established by the GAAP

and GAAS.

15. A large percentage of all CPAs in the United States are members of the AICPA and

thus are subject to its discipline standards. Since 1975, the AICPA has jointly operated

ethics enforcement with the state societies of CPAs.

16. Discuss the nature of a fiduciary relationship with students. Remind them that the

relationship between an accountant and a client is a fiduciary relationship. Then

discuss why the statements of persons in a fiduciary relationship are actionable.

17. The American Bar Association has nearly 400,000 members with a large

administrative staff and budget.

18. Assign a short research paper on the legal requirements for becoming a health care

professional in your state. Students may choose a specialty from any of the health

care professions.

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