BL-Chapt51 - Print Chapter Page 1 of 25 Professional...

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Professional Liability and Accountability Chapter Introduction 51-1 Potential Liability to Clients 51-1a Liability for Breach of Contract 51-1b Liability for Negligence 51-1c Liability for Fraud 51-1d Limiting Professionals' Liability 51-2 Potential Liability to Third Parties 51-2a The Ultramares Rule 51-2b The Restatement Rule 51-2c Liability to Reasonably Foreseeable Users 51-2d Liability of Attorneys to Third Parties 51-3 The Sarbanes-Oxley Act of 2002 51-3a The Public Company Accounting Oversight Board 51-3b Applicability to Public Accounting Firms 51-3c Requirements for Maintaining Working Papers 51-4 Potential Liability of Accountants under Securities Laws 51-4a Liability under the Securities Act of 1933 51-4b Liability under the Securities Exchange Act of 1934 51-4c The Private Securities Litigation Reform Act of 1995 51-5 Potential Criminal Liability of Accountants 51-5a Criminal Violations of Securities Laws 51-5b Criminal Violations of Tax Laws 51-6 Confidentiality and Privilege 51-6a Attorney-Client Relationships 51-6b Accountant-Client Relationship Chapter Recap Page 1 of 25 Print Chapter 2010-8-30 ..
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Professionals such as accountants, attorneys, physicians, architects, and others are increasingly faced with the threat of liability. One of the reasons for this is that the public has become more aware that professionals are required to deliver competent services and are obligated to adhere to standards of performance commonly accepted within their professions. Certainly, the dizzying collapse of Enron Corporation and the failure of other major companies, including WorldCom, Inc., in the early 2000s called attention to the importance of abiding by professional accounting standards. Arthur Andersen, LLP, one of the world's leading public accounting firms, ended up being indicted on criminal charges for its role in thwarting the government's investigation into Enron's accounting practices. As a result, that company ceased to exist and roughly 85,000 employees lost their jobs. Moreover, under the Sarbanes -Oxley Act of 2002, which Congress passed in response to these events, public accounting firms throughout the nation will feel the effects for years to come. Among other things, the act imposed stricter regulation and oversight on the public accounting industry. Considering the many potential sources of legal liability that they face, accountants, attorneys, and other professionals should be very aware of their legal obligations. In this chapter, we look at the potential liability of professionals under both the common law and statutory law. The chapter concludes with a brief examination of the relationships of professionals, particularly accountants and attorneys, with their clients. Page 2 of 25
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BL-Chapt51 - Print Chapter Page 1 of 25 Professional...

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