Preview

Johnson Bank V. Korbakes Case Study

Good Essays
Open Document
Open Document
Johnson Bank v. George Korbakes & Co., LLP

Commercial Law
03/17/2013
Facts of the case
Brandon Apparel Group, Inc. (“Brandon”) was involved in the business of manufacturing and sales of casual apparel as well as licensed other companies to manufacture, distribute and sell its clothing lines. Additionally, Brandon had licensing agreements with several colleges, universities, and sports organizations, such as the National Football League. In 1997 Brandon borrowed funds from Johnson Bank (the “Bank”). Brandon’s owners signed all the necessary paperwork and personally guaranteed a $5 million term loan and a $4 million line of credit. Brandon agreed to make monthly payments for the term loan and pay the full balance by June
…show more content…

The primary legal issue was the claim of negligent misinterpretation and the secondary issue was the third party breach of contract. The Bank claimed that it suffered losses as a third-party beneficiary of the engagement contract to conduct the audit between Brandon and GKCO. The Bank also claimed that GKCO committed the tort of negligent misrepresentation. According to the definition, when the parties enter into a contact, they can agree that the performance of one of the parties should be rendered to or directly benefit a third party, which then becomes an intended third-party beneficiary (Cheeseman, 2012, p. 266). An intended third-party beneficiary has the right to enforce the contract against the breaching party. As described in Section 552 of the Restatement (Second) of Torts, an accountant is liable for his or her negligence to any member of a limited class of intended users for whose benefit the accountant has been employed to prepare the client’s financial statements or to whom the accountant knows the client will supply copies of the financial statements (Cheeseman, 2012, p. 896). An accountant can be found liable to a third-party beneficiary if the following conditions are met: (1) the client intended the accountant’s work to benefit or influence the third party; and (2) the accountant knew of that intent (Johnson Bank v. Korbakes, 2005). Both the U.S. …show more content…

The court believed that even with presence of some errors, the audit report fully disclosed all the important information regarding the state of the company’s financial

You May Also Find These Documents Helpful

  • Powerful Essays

    Smackey Dog Foods

    • 1374 Words
    • 6 Pages

    In an attempt to expand the business, Sarah has applied for a loan of $150,000 with a local bank. Currently, Smackey Dog Food Inc. already has an outstanding loan of $150,000 which is secured by the production equipment that was purchased with the money from the loan. Smackey Dog Food Inc.’s goal is to secure a second loan that would be secured by the company’s corporate accounts receivable. The bank is requiring a set of audited financial statements before issuing the second loan. Therefore, Smackey Dog Food Inc has contacted my firm, Keller CPAs, to perform the audit. My firm had no prior experience with auditing dog food manufacturers, but we decided to venture out and accept the audit at the end of the year. Assigned to the lead the audit are Pete, Ben and Maureen. Pete is a very experienced auditor that I have worked with on several audits. Ben and Maureen were assigned field auditors to assist myself and Pete. Ben has been with my firm for one year with no prior auditing experience to Keller CPAs. Maureen has 5 years prior experience as an auditor before joining our team. We at Keller CPA have researched and benchmarked the industry to qualify a knowledgeable opinion of our new client, Smackey Dog Food Inc.…

    • 1374 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    FACT: In this case both sides of the party have very good statements and facts that either hold them responsible or not hold them responsible. When it comes to the defendant Mervin Hyland, he says that during the whole time the two promissory notes were being conducted he was incapacitated through the use of liquor when he signed the note. When it comes to the plaintiff First state bank of Sinai, they stated that he signed a promissory note and sent a check for $900 to pay for interest on the note.…

    • 547 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    E. On September 17, the bank paid the check and charged it against Siegel's account.…

    • 339 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    On the allegations related to the Age Discrimination in Employment Act, Title VII of the Civil Rights Act, and the Minnesota Human Rights Act, the parties agreed that McDonnell Douglas analysis applies (McDonnell Douglas Corp. v. Green). Applying McDonnell Douglas means that the plaintiff must establish a prima facie case of discrimination. At that point, the defendant must produce a legitimate non-discriminatory reason for its actions. In response to the defendants reasoning, the plaintiff must then demonstrate that the nondiscriminatory reason offered by AEFA was a pretext for…

    • 463 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Therefore, the New York Court of Appeals reversed the lower courts’ decision and dismissed Credit Alliance cause of action for negligence against Arthur Anderson and Co. AU 110.02 states that, the auditor has responsibility to perform the audit in obtaining reasonable assurance (not absolute) about whether the financial statements are free of material statement, whether, caused by error or fraud. But the auditor has no responsibility to obtain reasonable assurance if the misstatements detected are immaterial to the financial…

    • 650 Words
    • 3 Pages
    Good Essays
  • Good Essays

    billy beats

    • 505 Words
    • 3 Pages

    When considering whether or not to accept a new audit client, the successor audit should make specific and reasonable inquiries of the predecessor auditor regarding matters that will assist the successor auditor in determining the acceptance of the engagement. Matters subject to inquiry include: information that might bear on the integrity of management, disagreements with management as to accounting procedures, or other similar significant matters, and communications to audit committees regarding fraud, or illegal acts by clients. The engagement team of Billy’s Beats Inc. relied heavily upon management’s assumptions and integrity. By not communicating with the predecessor auditor, the successor auditor is blindly trusting management’s integrity and accounting policies.…

    • 505 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion.…

    • 391 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    3. Exactly what do you want your audience to think, feel or believe after receiving your message?…

    • 766 Words
    • 4 Pages
    Satisfactory Essays
  • Better Essays

    The Civil Rights Act of 1964, Title VII, forbids “an employer to … discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s … sex.” Civil Rights Act, 1964. In Meritor Savings Bank v. Vinson, the court held that “a plaintiff may establish a violation of Title VII by proving that discrimination based on sex has created a hostile or abusive work environment.” Meritor Savings Bank v. Vinson (US 1986). A hostile work environment is created when the environment at work creates anxiety so severe as to result in an alteration of the terms and conditions of employment. Hailey Course Pack, p. 140. The burden to prove such an environment was created rests on the plaintiff. The plaintiff must prove that they belong to a protected class; were subject to unwelcomed harassment; the harassment is based on sex, meaning it is not happening to members of the opposite sex; and the harassment alters the conditions of employment. Hailey Course Pack, p. 140. In this case, the court will evaluate whether Black has sufficient evidence to prove her claim of a hostile work environment.…

    • 1852 Words
    • 8 Pages
    Better Essays
  • Good Essays

    Justice Scalia in his concurring opinion of the case Meritor Savings Bank v.Vinson (1986) discusses the standard required to classify a “ hostile work environment.” He states that a “ hostile work environment, ” will be made up of “ an environment that a reasonable person would find hostile or abusive (205). The classification of a workplace as a “ hostile work environment,” is a very difficult task considering classifying a firm as a “ hostile work environment,” could severely ruin their reputation and their income. Such label should not emerge as part of a one time incident, especially if the companies chooses to assess the harassment claims shortly after they are filed. Severity must also fall into consideration when defining a hostile work environment because of how potentially damaging these actions can be. The harsher cases of harassment require harsher punishment for the perpetrator to act as a deterrent. However, if a pattern emerges or the…

    • 1034 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    Summary: Marie-Claude operated a bowling alley in a commercial area that was adjacent to a residential area. Many small children used the parking lot near the bowling alley as a playground, and Marie-Claude was constantly tell these children leave the parking area maybe they will get injured. However, one six years old boy climb onto the flat roof of the bowling alley and while he is running, tripped and fell to the ground. But Marie-Claude continued to order the child off the roof by several times when he was on the roof.…

    • 1244 Words
    • 5 Pages
    Satisfactory Essays
  • Better Essays

    This research paper analyzes the degree of an auditor's liability to clients and third parties under applicable law. Specifically, it focuses on accountants in their professional role engaged by contract to express an opinion about a company's financial statements and the professional commitment to exercise due care in providing those services. An accountant's failure to comply with the promised obligations can result in the accountant being held liable to clients for fraud, negligence, and breach of contract. In some cases, accountants may have a potential legal obligation to third parties as a result of not following established professional standards.…

    • 7118 Words
    • 29 Pages
    Better Essays
  • Good Essays

    As an accountant the caller had legal and ethical responsibility to inform the bank about the fraudulent financial statements. If the caller’s assessment of the situation is wrong, then he/she faces the possibility of getting fired by the company.…

    • 1027 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    ACCOUNTING MINICASE: ACCT – 13 TEACHING NOTES BUSINESS ETHICS PROGRAM Survive the Year Teaching Notes What Are the Relevant Facts? 3. Not make the allowance adjustment but provide information to the auditor that will effectively lead to revealing the uncollectability of the Ender account. Chris and Robin, the CEO, know a material receivable is probably uncollectable, but no adjustment to the allowance account has yet been made.…

    • 478 Words
    • 5 Pages
    Satisfactory Essays
  • Good Essays

    Dawson Stores, Inc. (Dawson) needs additional working capital next year. The company would like to obtain a $1,000,000 line of credit, on an unsecured basis from Springfield National Bank (Springfield). The approval of an unsecured loan would be based on the borrower's credit-worthiness. In order to evaluate this, the company provided its financial statements to Springfield for the year 1990 to 1993.…

    • 579 Words
    • 2 Pages
    Good Essays