Exam 47: Accountants Liability and Malpractice

In some states an exculpatory clause protects the accountant from a malpractice suit brought by a third party but now from a suit brought by a client.

A disclaimer based on lack of knowledge will always protect an accountant from liability.

What constitutes negligence is the same for an accountant who is a full-time employee as it is for an independent outside auditor.

The statute of limitations in a tort action for malpractice runs from:

When the privity rule is applied,a bank lending money to the client of an accountant cannot sue the accountant for malpractice.

The privity rule:

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

Some courts have rejected the requirement of privity for malpractice and instead approach each situation on a case-by-case basis.

Under the "known-user" rule,it is sufficient if a user is a member of a known class,even if the identity of the particular user is not known to the accountant.

When an accountant fails to complete a contract,the accountant is still entitled to the accountant's fee.

Misrepresentation:

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

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

Under the known user rule:

When an accountant makes a contract to perform services,there is a duty to exercise the skill and care that are common for the accounting profession.

The privity rule permits the filing of an accounting malpractice lawsuit by a third party against an accountant.

According to the intended user rule the accountant must have furnished the information directly to the nonprivity user or to the client knowing that they client would transmit the information.

A client may recover tort damages from an accountant for fraud and gross negligence,but not for ordinary negligence.

An accountant may be liable for malpractice if the accountant fails to detect signs that an employee of the client is embezzling.

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.