Exam 40: Accountants' Liability

In order to audit a public company,a public accounting firm must register with the Public Company Accounting Oversight Board (PCAOB).

Accountants cannot be held liable for their negligence in preparing unaudited financial statements.

Where an accountant has been found liable for actual or constructive fraud,the client may bring a criminal lawsuit and recover any damages proximately caused by that fraud.

An unqualified opinion represents an auditor's finding that the company's financial statements unfairly represent the company's financial position.

Peter Johnson,LLP is a full-service registered public accounting firm which has the ability to perform a variety of accounting services for its clients.They have been retained by Spin Well Bicycles,a very large bicycle manufacturer,to conduct annual audits They have had a good working relationship for three years without problems.The chief executive officer of Spin Well contacts Peter Johnson,requesting that the accounting firm begin providing additional services on behalf of Spin Well.What services may Peter Johnson perform for Spin Well,and what services are they prohibited from performing?

In Ultramares Corporation v.Touche,the United States Supreme Court held that an accountant cannot be held liable for negligence unless the plaintiff was either in privity of contract or a privity-like relationship with the accountant.

Why do accountants not enjoy an accountant-client privilege similar to the attorney-client privilege?

When an accountant performs his or her services with reckless disregard for the truth,or with reckless disregard for the consequences of his or her actions,the accountant is guilty of actual fraud.

The Public Company Accounting Oversight Board consists of ________ members appointed for ________ year terms.