Flashcards in Malpractice Liability Deck (16):
List the two types of agreements.
Express or Implied.
What must be proven by a contracting party to establish the defense of fraud?
•Misrepresentation or omission of fact
What occurs when the breach of a contract is minor?
In common law, if a breach is only minor, the non-breaching party is not discharged from the terms and conditions of the contract, but is entitled to damages.
List the three primary approaches to accountant liability.
The Privity Approach of Ultramares v. Touche.
The Restatement "Limited Class" Approach.
The Reasonable Foreseeability Approach.
Define "constructive fraud".
Reckless disregard or gross negligence.
Define "actual fraud."
Fraud is an intentional tort that is made with scienter or a knowledge to deceive.
That degree of judgment and skill possessed by a reasonable accountant under all the circumstances.
Define implied agreement.
To perform in a non-negligent manner, consistent with the standards of the profession.
Describe the Restatement "Limited Class" Approach to accountant liability.
The Accountant has third party liability to a limited class of known or intended users of financial statements whose specific identity need not be known by the CPA.
Define "breach of contract".
Failure to perform substantially as agreed under contract.
What types of damages can a tax client recover?
Compensatory damages, but not punitive.
List the sources for which standards should be followed by a tax professional.
State and Federal statutes, Court decisions, Contract with client, Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS), Customs of the Profession.
List the elements of recovery.
Duty, Breach, Damages, Proximate Cause.
Describe the Reasonable Foreseeability Approach to accountant liability.
The Accountant is liable to whomever s/he can reasonably foresee may use the financial statements s/he certifies or prepares.
The performance of a contract in a careless manner. Negligence does not lead to punitive damages.