Quiz 27 :
Case: W and S invested in a fraudulent aircraft company. B was an accountant who advises several clients for investing in that fraudulent aircraft company. W and S are not the client of accountant B but they relied on the information given by the accountant. Now W and S claim that the accountant is liable. Relevant provision: The court adopted Restatement Doctrine. According to Restatement Doctrine, an accountant who does not pay proper attention and care to: • Anyone they knew and who relied on accountant's information and suggestion • Anyone else in the same class. The Restatement doctrine states that the accountant who does not work with due care would be liable to third party who relied on the information given by the accountant. The accountant would also be liable to the third party in the same class who relied on the information provided by the accountant. Conclusion: In this case, W and S were not the clients of the accountant B. But they were in the same class who relied on the information and suggestion given by the accountant. It was not a good idea for the accountant to provide wrong information to his clients or person in the same class. It will create conflict of interest between his client and investment company. Hence, the accountant will be liable to W and S also.
IFRS (International Financial Reporting Standards): IFRS is the set of standards for international transactions. It makes the international trade comparable and competitive. US should adopt IFRS due to the following advantages: • It will make the market of US globally competitive. • The yields under IFRS and USGAAP will be same. • IFRS has been globally recognized. • It has been adopted by most of the big accounting firms. • IFRS will help to build the economy of US stronger. • It provides uniform platform for international trade. • IFRS is more competitive than USGAAP. • It will create more business opportunities for accountants in US. Hence, IFRS should be adopted in US to boost the economy of US.
A Certified Public Accountant is liable for negligence to the client who proves these conditions: • The accountant breached his duties to his client by failing to exercise the degree of skill and competence. • If an accountant fails to follow GAAP or GAAS he proves the breach of contract. • If the accountant has violated the rules and it causes loss to the client then the accountant is liable for the negligence of the duties. a. Gives a client oral instead of written report: The accountant should give the report in writing but not in oral form. However, giving the report does not violate any rule. Hence, the client will not be breached. b. Gives client an incorrect advice will not violate any accounting standard or rule. But he should not advice the client incorrectly. c. Failures to give tax advice will also not the violation of any accounting standards. Hence, the options a, b and c are incorrect. d. Failure to follow GAAS (Generally Accepted Accounting Standards) will be the violation of rules and the client will be breached. Hence, the correct answer is (d).