Exam 46: Accountants Liability and Malpractice

Sarbanes-Oxley would prohibit which of the following individuals from serving on an audit committee of the company's board?

Professionals who fail to exercise normal care and skill in the performance of a contract for their services may be sued for a special type of breach known as: ______.

For accountants, fraudulent malpractice always involves upgrading the financial condition of the firm.

In an action for breach of contract, the statute of limitations runs from the date on which the contract is breached.

Third persons are prohibited from recovering from an accountant who commits fraud.

Courts generally impose liability on the accountant when a total stranger gets possession of the accountant's work and then sustains a loss because of a false statement in the work.

An exculpatory clause most likely would be held to limit or disclaim liability for malpractice: ______.

An accountant cannot be held liable for turning a blind eye to suspicious issues and items.

A disclaimer that protects an accountant from liability for inaccurate reporting of certain specified financial information will be held valid if the accountant had no means of examining the information.

A disclaimer based on lack of knowledge protects an accountant from malpractice liability.

The known user rule imposes liability on the accountant for malpractice when he can foresee the parties who will rely on his work in the financial statements.

An accountant who fails to render services in accordance with those in his profession, breaches his duty of care and commits malpractice.

Horseco, a new business, purchased ten thoroughbred horses for racing and breeding purposes. It hired John, an accountant, to prepare financial projections of anticipated future earnings for the first five (5) years of the new business. The information provided to John as the basis for the projections included assumptions made by Horseco about anticipated earnings from racing and breeding. The assumptions were based on Horseco's experience and were not based on objective standards that could be examined by John. John included with the projections a disclaimer that stated that the income projections were based on assumptions provided by Horseco and that John assumed no personal responsibility for the accuracy of those projections. Subsequently, the Larson Company purchased a fifty (50) percent interest in Horseco, and when Horseco's income did not match the projections, Larson sued John for accounting malpractice. How will the court decide?