1. If Shuebke’s review was conducted in good faith and conformed to generally accepted
accounting principles, could Superior hold Shuebke Delgado liable for negligently failing to
detect material omissions in Chase’s audit? Why or why not?
This is a matter of accountant liability, negligence – or failing to detect material omissions,
and the treatment of accountants acting in good faith and following the generally accepted
accounting principles. The basic question is whether or not Shuebke can be held liable assuming she
had acted in good faith and conformed to the generally accepted accounting principles. To begin,
generally accepted accounting principles can be defined as the conventions, rules, and procedures
used to delineate what the acceptable accounting principles are at a specific time. They also outline
the level of skill expected of accountants and the degree of care that they should exercise in
performing their services. These principles are defined by the Financial Accounting Standards
In determining whether or not Shuebke will be liable if acting under good faith, the
Securities Exchange Act of 1934 should first be examined. Under the act, an accountant is
alleviated from liability if the accountant acted in “good faith” – the total absence of any intention
on the part of the accountant to seek an unfair advantage over, or to defraud, another party(1).
However, in order for an accountant to use the good faith defense, they must prove that they had
acted in good faith. This can be done through demonstrating that the accountant had no knowledge
that the information was false or misleading, also known as a lack of scienter.
Another specific act to look into would be the Securities Act of 1933, specifically Section
11, which states that a civil liability can be imposed on accountants for omissions and
misstatements, but also requires accountants to use due diligence. “To avoid liability, the accountant
must show that he or she had, after reasonable investigation, reasonable grounds to believe and did
believe, at the time such part of the registration statement became effective, that the statements
therein were true and that there was no omission of amaterial fact required to be stated therein or
necessary to make the statements therein not misleading. Further, the failure to follow GAAP and
GAAS is also proof of a lack of due diligence” (2).
In general, in order for a professional (including accountants) to be liable, under the
common law, there must be a breach of contract, negligence, or fraud. In order for a professional to
be liable for negligence, certain criteria must be met. A duty of care needed to exist, that duty was
breached, the plaintiff suffered an injury, and the injury was proximately caused by the defendant’s
breach of the duty of care. Particularly for accountants, evidence of negligence will be considered
prima facie if there was a violation of GAAP.
In regards to Shuebke, as long as she acted in good faith and conformed to the generally