Ch. 27: Professional Liability and Accountability – No. 1
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
designs, controls, or audits financial recordkeeping systems,
An accountant who conforms to generally accepted
Ch. 27: Professional Liability and Accountability – No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
ATTORNEY’S DUTY OF CARE
competently and diligently as would a reasonably
competent specialist in that area of the law.
At a minimum, an attorney must
investigate and discover facts that could affect the
client’s legal rights and responsibilities.
Malpractice: An attorney who lacks the required competence
Ch. 27: Professional Liability and Accountability – No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
ACCOUNTANT’S LIABILITY
TO THIRD PARTIES
Ultramares Rule: An accountant only owes a duty of care to
those persons for whose primary benefit the accountant’s
Restatement Rule: Restatement (Second) of Torts § 552(2)
extends the Ultramares Rule, holding that accountants are
also liable to third parties
recipient intends the information to influence.
Reasonably Foreseeable Users: A minority of courts hold
accountants liable to any user whose reliance on the
accountant’s report was reasonably foreseeable.
Ch. 27: Professional Liability and Accountability – No. 4
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
SARBANES-OXLEY AND
PROFESSIONAL LIABILITY
The Sarbanes-Oxley Act imposes a number of strict
requirements on both domestic and foreign public accounting
firms that audit corporations whose securities are offered for
sale to the U.S. investing public.
Auditor Independence: Exhibit 48-1 identifies a
number of key Sarbanes-Oxley provisions regarding
public accounting firms’ independence from the
publicly-traded firms they audit.
for seven years from the end of the fiscal period in
which they concluded their audit or review.
Ch. 27: Professional Liability and Accountability – No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
An accountant’s Section 11 liability extends to claims by
anyone who acquires a security covered by the
registration statement.
Due Diligence Defense: An accountant can avoid
Section 11 liability if he can show that, after reasonable
investigation, he had reasonable grounds to believe,
and did believe, that the financial statements were true
and complete at the time the accountant made them.
Ch. 27: Professional Liability and Accountability – No. 6
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
ACCOUNTANT’S EXCHANGE ACT LIABILITY
the misrepresentation affected the security’s price; or
the purchaser or seller relied on the misrepresentation
and did not know that the statement was inaccurate.
a purchaser or seller of a security for knowingly and
intentionally misrepresenting or omitting a material fact in
connection with the purchase or sale.
The Private Securities Litigation Reform Act of 1995 requires
PRIVILEGE AND CONFIDENTIALITY
Attorney-Client Privilege: Confidential communications
between an attorney and her client relating to the rendition of
between an accountant and his client relating to the
accountant’s rendition of professional services are also
confidential; however, in most states and under federal law,
an accountant must disclose confidential information
provided by or to his client if a court orders him to do so.
The law only protects confidential communications, to the
extent that it protects any; thus, if a client says something
publicly, overheard by many, one of whom was her attorney
or accountant, that public statement would not be privileged
because the client did not make it confidentially.
Ch. 27: Professional Liability and Accountability – No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
ATTORNEY’S DUTY OF CARE
competently and diligently as would a reasonably
competent specialist in that area of the law.
At a minimum, an attorney must
investigate and discover facts that could affect the
client’s legal rights and responsibilities.
Malpractice: An attorney who lacks the required competence
Ch. 27: Professional Liability and Accountability – No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
ACCOUNTANT’S LIABILITY
TO THIRD PARTIES
Ultramares Rule: An accountant only owes a duty of care to
those persons for whose primary benefit the accountant’s
Restatement Rule: Restatement (Second) of Torts § 552(2)
extends the Ultramares Rule, holding that accountants are
also liable to third parties
recipient intends the information to influence.
Reasonably Foreseeable Users: A minority of courts hold
accountants liable to any user whose reliance on the
accountant’s report was reasonably foreseeable.
Ch. 27: Professional Liability and Accountability – No. 4
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
SARBANES-OXLEY AND
PROFESSIONAL LIABILITY
The Sarbanes-Oxley Act imposes a number of strict
requirements on both domestic and foreign public accounting
firms that audit corporations whose securities are offered for
sale to the U.S. investing public.
Auditor Independence: Exhibit 48-1 identifies a
number of key Sarbanes-Oxley provisions regarding
public accounting firms’ independence from the
publicly-traded firms they audit.
for seven years from the end of the fiscal period in
which they concluded their audit or review.
Ch. 27: Professional Liability and Accountability – No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
An accountant’s Section 11 liability extends to claims by
anyone who acquires a security covered by the
registration statement.
Due Diligence Defense: An accountant can avoid
Section 11 liability if he can show that, after reasonable
investigation, he had reasonable grounds to believe,
and did believe, that the financial statements were true
and complete at the time the accountant made them.
Ch. 27: Professional Liability and Accountability – No. 6
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
ACCOUNTANT’S EXCHANGE ACT LIABILITY
the misrepresentation affected the security’s price; or
the purchaser or seller relied on the misrepresentation
and did not know that the statement was inaccurate.
a purchaser or seller of a security for knowingly and
intentionally misrepresenting or omitting a material fact in
connection with the purchase or sale.
The Private Securities Litigation Reform Act of 1995 requires
PRIVILEGE AND CONFIDENTIALITY
Attorney-Client Privilege: Confidential communications
between an attorney and her client relating to the rendition of
between an accountant and his client relating to the
accountant’s rendition of professional services are also
confidential; however, in most states and under federal law,
an accountant must disclose confidential information
provided by or to his client if a court orders him to do so.
The law only protects confidential communications, to the
extent that it protects any; thus, if a client says something
publicly, overheard by many, one of whom was her attorney
or accountant, that public statement would not be privileged
because the client did not make it confidentially.