Exam 46: Accountants Liability and Malpractice

A person not in privity with an accountant is prohibited from recovering for malpractice when the accountant had no knowledge of any use that could affect that party.

Disclaimers of liability are not valid, even when it is reasonable to expect the accountant to stand behind her data.

A client may only recover tort damages from an accountant for ordinary negligence.

Under the ______ Act, auditors are to report any fraud at the company to management and the audit committee, and may be eligible for ______.

An accountant who is being sued by a third person for malpractice based on fraud will be able to avoid liability if the accountant can show:

Misrepresentation: ______.

The statute of limitations in a breach of contract action for malpractice runs from: ______.

The contributory negligence of the client does not reduce the liability of an accountant who is liable for malpractice.

Under the known user rule: ______.

In contrast to contributory negligence principles, comparative negligence principles are never applied to malpractice situations.

The contact rule does not require that the accountant to actually meet or communicate with the third party to establish a relationship equivalent to privity.

When an accountant negligently prepares a financial statement knowing that the client intends to use it in obtaining a loan from a bank, the accountant will be liable to whichever lender actually makes the loan under the __________rule.

New York follows the contact rule in determining when third persons can sue accountants for negligence.

Disclaimers are not enforceable unless they are clear and unambiguous.

In some states, exculpatory clauses cannot protect the accountant from a suit brought by a third party.

The standards for malpractice are the same for accountants who are full-time employees, as well as independent outside auditors.

An accountant may be able to raise the defense of the ______ in a malpractice suit by a third party.

Breach of contract remedies are available to third parties against accountants because they are ordinarily considered third-party beneficiaries of contracts with accountants.

__________ impose liability on the accountant to a total stranger who gets possession of the accountant's work and then sustains a loss because of a false statement in the work.

Following GAAP and GAAS is persuasive but not conclusive evidence of meeting standards for the accounting profession.