third party does not have privity. If fraud or gross negligence has not been committed‚ four common-law standards exist for determining the types of third parties than can successfully sue auditors for ordinary negligence: 1. Privity (p. 699); Ultramares case a. contract or specific agreement exists between the two parties b. if using this standard‚ third parties generally cannot sue the auditor because they’re usually not involved in the agreement‚ even if the auditor was negligent 2. Near privity
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(1998) National Professional Liability Insurance Agency- Engagement Letter Outlaws Legal Service. Accountant ’s Legal Responsibilities. 2000. Nov. 2007. < http://www.outlawslegal.com/refer/ch40.htm>. Washington: Mar. 1991. Vol.36‚ Iss.3; pg.24-28. Ultramares Corp. v. Touche – 174 N.E. 441‚ 1931 N.Y. Lexis 660 (N.Y. App.). U.S. v. Simon - 425 F. 2d 796 C.A.N.Y (1969). Vinson & Elkins LLP. "Accountant Liability Case Watch. Oct. 2007. <http://www.velaw.com/mcso/shared/litigation/AccountantLiabilityCaseWatch2007-
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damages arising from this negligence. There are three major rules of liability that a state can adopt in determining whether an accountant is liable in negligence to third parties. 1.The Ultramares doctrine 2.Section 552 of the Restatement (Second) of Torts 3.The foreseeability standard Ultramares doctrine is a rule which says that an accountant is liable only for negligence to third parties who are in privity of contract or in a privitylike relationship with the accountant. It provides
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reasonable care in the performance of services. Answer: False Difficulty: Easy 2. Most of the burden of affirmative proof is on the defendant under common law. Answer: False Difficulty: Medium 3. The Ultramares v. Touche case held that auditors could be held liable to any foreseen third party for ordinary negligence. Answer: False Difficulty: Medium 4. The Securities Exchange Act of 1934 offers recourse against the auditors to a
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Research Paper – Accountant Responsibility Introduction Accounting by definition is “The bookkeeping methods involved in making a financial record of business transactions and in the preparation of statements concerning the assets‚ liabilities‚ and operating results of a business” (The American Heritage). An accountant’s responsibility is not something that is equally split or separated by category. It is not something that can be defined easily or without a lot of research and thought. An accountant
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CHAPTER 4 Legal Liability Of CPAs Review Questions 4-1 There are several reasons why the potential legal liability of CPAs for professional "malpractice" exceeds that of physicians and other professionals. One reason is the vast number of people who may sustain damages. If a physician or attorney commits a serious error‚ the number of injured parties generally is limited to one individual patient or client. When a CPA’s report is in error‚ literally millions of investors
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Phar-Mor Case Study Phar-Mor Case 4.6 Questions 1. a) By hiring a member of its external audit team a company could gain insight into the auditor’s process and better devise methods of hiding fraud. b) Hiring a former auditor would greatly compromise and possibly impair the existing external auditor’s ability to remain independent. On top of having knowledge about the auditor’s practice‚ preexisting relationships could cause bias in the audit outcome. c) Sarbanes-Oxley Act 2002 limits the ability
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Based on - Auditing & Assurance Services: A Systematic Approach (7th edition) EXAM CHAPTERS: 1‚ 2‚ 7‚ 18‚ 19‚ 20 and 21 EXAM REQUIREMENTS: - Closed-book exam (no text‚ notes‚ etc.) - Limited to 90 minutes - Pencils and erasers (no calculator required) EXAM POINT DISTRIBUTION: Total Points 150 (50 Multiple-Choice questions) By Chapter: Chapter 1 = 15 points Chapter 2 = 21 points Chapter 7 = 6 points Chapters 18‚ 19‚ 20 and 21 = 27 points each EXAM STUDY APPROACH:
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Bibliography: Perre v Apand (1999) 198 CLR 180. Ultramares Corp v Touche‚ Niven & Co 174 NE 441 (1931). Textbook; Harvey‚ C and Mesiti‚ V (2009)
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They did not engage in actual or constructive fraud. (pg. 806) They had no information that would lead them to know that FAMCO was going to give the audit reports to Hutton‚ which Hutton used as a basis for purchasing loans from FAMCO. Under the Ultramares doctrine an accountant can
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