Quiz 30: Liability of Accountants and Other Professionals


The given facts indicate that the accountant knew that the bank would use the statement thus making them a party with reliance expectations and thus a foreseeable user. An accountant may be liable for negligence to foreseeable parties who rely. Accountant liability derives itself from common and statutory law liability. Theories of liability include negligence, breach of contract and fraud. Negligence occurs when there is a failure to exercise due professional care. Contract liability stems from not providing the services agreed to in engagement of service letters. Fraud occurs when there is misrepresentation. .

Professionals may be liable to clients under the following common law theories: (a)Breach of contract: Any failure of the professional to perform as per the terms and obligations of the contract may be held liable for the breach of contract and damages caused as a result of the same. (b)Negligence: A professional must perform his or her duties with the care, knowledge, and judgment usually used by the professionals in the same or similar situations. If a professional fails to do so, it will be considered as negligence. Any accountant's violation of (Generally Accepted Accounting Principles) and GAAS (Generally Accepted Auditing Standards) is prima fade evidence of negligence. An accountant can be held liable for revealing confidential information or the contents of working papers without the client's consent or any such malpractice. (c)Fraud: A professional's actual intent to misrepresent a material fact to a client, and the client believes the misrepresentation to his/her injury, is fraud. Gross negligence in performing professional duty is a constructive fraud.

Professionals: Professionals are the persons who provide some special services to their clients for return of fees. Example - accountants, chartered accountants, company secretary, attorneys, and others. Professionals are liable for the services they render, thus they should adhere to specified standards of performance. The common law theories under which the professionals are liable to its clients includes: • Breach of Contract: It is the duty of the professionals to honor the terms of their contract with the clients. Breach of any such term can held the professional liable for the expenses incurred by the client on professionals. • Act of fraud: The professional can be held liable for constructive or actual fraud. • Act of negligence: Professionals can also be held liable for any negligence on their part of the contract that causes harm to the clients.

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