Exam 42: Professional Liability and Accountability

An accountant who fails to discover every impropriety in a client's books is liable to the client on a negligence theory for any resulting loss.

Because of the potential for significant losses to sellers and buyers, under both of the federal securities acts liability is imposed on accountants for all acts of negligence, including "mere" negligence.

Leisure Inc.'s accountant is Mel and the firm's attorney is Nola. All states protect, as privileged information, Leisure's communications with

Dena, an accountant, contracts to perform services for Equipment Maker Inc. Dena acts in good faith and conforms to generally accepted accounting principles but makes an incorrect judgment. Dena is most likely

Manufacturing Inc. hires Neri, an accountant, to maintain the company's financial records. Neri does not act negligently or fail to perform any duty but fails to discover that Ollie, the firm's chief finance officer, is embezzling funds from the firm. With respect to the corporation's losses, the accountant is

Despite a professional's breach of contract, the non-breaching client cannot obtain, as damages, the cost of penalties for failing to meet deadlines.

In some states, in the absence of privity, or a similarly close relationship, a party cannot recover from an accountant for negligence.

Sims, an accountant, prepares for Taco Corporation a financial statement that omits a material fact. The financial statement is included in Taco's registration statement, which Uri reads. Uri buys Taco stock. Under Section 11 of the Securities Act of 1933, for Sims to be liable for the omission, Uri must show that he

In view of the reliance of numerous parties on the opinions of auditors, many courts have ceased to hold accountants liable to third parties for negligence.

In performing professional services, an accountant is subject to the standard of the ordinarily prudent person.

In most states, an attorney may be liable for negligence to a non-client who the attorney knows or reasonably should know will rely on the attorney's opinion.

Reliant Inc. files a suit against Saul, an accountant, under the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission. To succeed, Reliant must show that Saul