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2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
A. LIABILITY FOR BREACH OF CONTRACT
A professional owes a duty to his or her client to honor the terms of their contract and to perform the
contract within the stated time period. If the professional fails to perform, he or she may be held liable for
expenses incurred by the client to secure another professional to provide the services, for penalties
imposed on the client for failure to meet time deadlines, and so on.
B. LIABILITY FOR NEGLIGENCE
All professionals are subject to standards of conduct established by codes of professional ethics, by state
statutes, and by judicial decisions. In their performance of contracts, professionals must exercise the
whole or in part.
• The IFRS are simpler, broader, and more straightforward. Many countries already use the
IFRS, which thus makes financial reporting standards more uniform.
c. Discovering Improprieties
An accountant who uncovers suspicious financial transactions and fails to investigate the matter
e. Qualified Opinions and Disclaimers
An auditor is not liable for damages resulting from whatever is specifically qualified or disclaimed.
f. Unaudited Financial Statements
g. Defenses to Negligence
Possible defenses include—
• The accountant was not negligent.
• The accountant’s negligence, if any, was not the proximate cause of the client’s loss.
judging an attorney’s performance, the standard used is normally that of a reasonably competent
general practitioner of ordinary skill, experience, and capacity.
a. Misconduct
A criminal act that reflects adversely on a person’s “honesty or trustworthiness, or fitness as a
whole or in part.
6 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
whole or in part.
In all professional functions a lawyer should be competent, prompt and diligent. A lawyer should maintain
communication with a client concerning the representation. A lawyer should keep in confidence information
relating to representation of a client except so far as disclosure is required or permitted by the Rules of
Professional Conduct or other law.
A lawyer’s conduct should conform to the requirements of the law, both in professional service to clients
and in the lawyer’s business and personal affairs. A lawyer should use the law’s procedures only for
legitimate purposes and not to harass or intimidate others. A lawyer should demonstrate respect for the legal
system and for those who serve it, including judges, other lawyers and public officials. While it is a lawyer’s
duty, when necessary, to challenge the rectitude of official action, it is also a lawyer’s duty to uphold legal
process.
As a public citizen, a lawyer should seek improvement of the law, the administration of justice and the
quality of service rendered by the legal profession. As a member of a learned profession, a lawyer should
cultivate knowledge of the law beyond its use for clients, employ that knowledge in reform of the law and work
to strengthen legal education. A lawyer should be mindful of deficiencies in the administration of justice and of
the fact that the poor, and sometimes persons who are not poor, cannot afford adequate legal assistance, and
should therefore devote professional time and civic influence in their behalf. A lawyer should aid the legal
profession in pursuing these objectives and should help the bar regulate itself in the public interest.
Many of a lawyer’s professional responsibilities are prescribed in the Rules of Professional Conduct, as
well as substantive and procedural law. However, a lawyer is also guided by personal conscience and the
approbation of professional peers. A lawyer should strive to attain the highest level of skill, to improve the law
and the legal profession and to exemplify the legal profession’s ideals of public service.
* * * *
Lawyers play a vital role in the preservation of society. The fulfillment of this role requires an un-
derstanding by lawyers of their relationship to our legal system. The Rules of Professional Conduct, when
properly applied, serve to define that relationship.
C. LIABILITY FOR FRAUD
II. Potential Liability to Third Parties
Many third parties (investors, shareholders, creditors, managers, directors, regulatory agencies, and others)
rely on professional opinions, such as those of auditors. In this light, many courts have all but abandoned the
privity requirement in regard to accountants’ liability to third parties. When a business fails, its independent
auditor may be one of the few potentially solvent defendants. Most courts hold auditors liable to third parties
whole or in part.
2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
A. LIABILITY FOR BREACH OF CONTRACT
A professional owes a duty to his or her client to honor the terms of their contract and to perform the
contract within the stated time period. If the professional fails to perform, he or she may be held liable for
expenses incurred by the client to secure another professional to provide the services, for penalties
imposed on the client for failure to meet time deadlines, and so on.
B. LIABILITY FOR NEGLIGENCE
All professionals are subject to standards of conduct established by codes of professional ethics, by state
statutes, and by judicial decisions. In their performance of contracts, professionals must exercise the
whole or in part.
• The IFRS are simpler, broader, and more straightforward. Many countries already use the
IFRS, which thus makes financial reporting standards more uniform.
c. Discovering Improprieties
An accountant who uncovers suspicious financial transactions and fails to investigate the matter
e. Qualified Opinions and Disclaimers
An auditor is not liable for damages resulting from whatever is specifically qualified or disclaimed.
f. Unaudited Financial Statements
g. Defenses to Negligence
Possible defenses include—
• The accountant was not negligent.
• The accountant’s negligence, if any, was not the proximate cause of the client’s loss.
judging an attorney’s performance, the standard used is normally that of a reasonably competent
general practitioner of ordinary skill, experience, and capacity.
a. Misconduct
A criminal act that reflects adversely on a person’s “honesty or trustworthiness, or fitness as a
whole or in part.
6 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
whole or in part.
In all professional functions a lawyer should be competent, prompt and diligent. A lawyer should maintain
communication with a client concerning the representation. A lawyer should keep in confidence information
relating to representation of a client except so far as disclosure is required or permitted by the Rules of
Professional Conduct or other law.
A lawyer’s conduct should conform to the requirements of the law, both in professional service to clients
and in the lawyer’s business and personal affairs. A lawyer should use the law’s procedures only for
legitimate purposes and not to harass or intimidate others. A lawyer should demonstrate respect for the legal
system and for those who serve it, including judges, other lawyers and public officials. While it is a lawyer’s
duty, when necessary, to challenge the rectitude of official action, it is also a lawyer’s duty to uphold legal
process.
As a public citizen, a lawyer should seek improvement of the law, the administration of justice and the
quality of service rendered by the legal profession. As a member of a learned profession, a lawyer should
cultivate knowledge of the law beyond its use for clients, employ that knowledge in reform of the law and work
to strengthen legal education. A lawyer should be mindful of deficiencies in the administration of justice and of
the fact that the poor, and sometimes persons who are not poor, cannot afford adequate legal assistance, and
should therefore devote professional time and civic influence in their behalf. A lawyer should aid the legal
profession in pursuing these objectives and should help the bar regulate itself in the public interest.
Many of a lawyer’s professional responsibilities are prescribed in the Rules of Professional Conduct, as
well as substantive and procedural law. However, a lawyer is also guided by personal conscience and the
approbation of professional peers. A lawyer should strive to attain the highest level of skill, to improve the law
and the legal profession and to exemplify the legal profession’s ideals of public service.
* * * *
Lawyers play a vital role in the preservation of society. The fulfillment of this role requires an un-
derstanding by lawyers of their relationship to our legal system. The Rules of Professional Conduct, when
properly applied, serve to define that relationship.
C. LIABILITY FOR FRAUD
II. Potential Liability to Third Parties
Many third parties (investors, shareholders, creditors, managers, directors, regulatory agencies, and others)
rely on professional opinions, such as those of auditors. In this light, many courts have all but abandoned the
privity requirement in regard to accountants’ liability to third parties. When a business fails, its independent
auditor may be one of the few potentially solvent defendants. Most courts hold auditors liable to third parties
whole or in part.
