Chapter 52.docx - BUSINESS LAW Chapter 52 Liability and Regulation of Accountants General Perspectives on Accountants’ Regulation and Liability

Chapter 52.docx - BUSINESS LAW Chapter 52 Liability and...

This preview shows page 1 - 3 out of 9 pages.

BUSINESS LAW Chapter 52 Liability and Regulation of Accountants General Perspectives on Accountants’ Regulation and Liability Understand why regulation of accountants is necessary. Recognize accountants’ common-law liability in tort and contract. Understand some aspects of federal statutory regulation of accountants. Know that there are also state laws that regulate accountants. Recognize other duties accountants owe their clients. 52.1 Section Outline: Why regulation of accountants is necessary. In the last forty years (to go no further back in time than that) there have been repeated and horrible business scandals involving crooked accountants and their crooked “work product.” The reason: being wealthy is a status assignor in our society; accountants’ clients, and accountants themselves, are not always honest (or morally strong) enough to resist the lure. “Cooking the books” can make a company, its owners, and its accountants money. When a plumber commits “malpractice,” a building’s plumbing system may fail. When a critically-placed accountant commits malpractice, not only does the immediate client suffer, but an entire business can fail, costing employee jobs, pensions, and security. Indeed, accountant malpractice, widespread enough, could bring down an entire economy. In addition, such malfeasance causes society to lose faith in the integrity of the economic system more generally. Key Takeaway Unfortunately, neither lawyers nor accountants are immune from the lure of money. As a result of wave after wave of accounting scandal, federal and state law regulates accountants. So too, certainly, does the common law. © 2017 FlatWorld 1
Image of page 1
BUSINESS LAW ____________________________________________________________ 52.2 Section Outline: Accountants’ common-law liability. _____________________________________________________________ o Breach of contract. When an accountant agrees to practice for a client, the accountant and the client have, of course, a contract. The accountant promises that she or he will use due care, will do a satisfactory, professional job for the client (and the client agrees, usually) to pay. If the accountant does not deliver on that promise, there arises liability for breach of contract. o Tort. An accountant can also be liable in tort for negligence or fraud, if the negligence or fraud is the “proximate cause” of the loss suffered. Negligence means failure to use appropriate care under the circumstances. As a professional, an account is held to a high standard; professional conduct is measured by the knowledge, skill, and judgment required of practitioners in the field. The duty is not to do a perfect job, but to avoid being careless. A particular problem is the degree to which the accountant is required to ferret out fraud (committed by the client, or the client’s bank, or the client’s customers). The modern rule is that the accountant must design her or his work to provide reasonable assurance that there are no material errors or omissions in the report.
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 9 pages?

  • Spring '16
  • Lynda Campbell

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors