Accountant's Liability to Third Parties

Recently, the question of liability has become more prevalent in the practice of public accounting. The AICPA (American Institute of CPAs) has been lobbying for liability reform in cases involving negligence or fraud committed by public accountants. So, being an accounting major myself, I wanted to write about the ongoing fight involving liability reform in public accounting.

to tough, outside scrutiny and that the auditor-client relationship is free from commercial conflicts of

Identify factors contributing to an environment conducive to accounting fraud . Understand what factors may inappropriately influence the client-auditor relationship and auditor independence Understand auditor legal liability issues related to suits brought by plaintiffs under both statutory and COmmonlaw

This purpose of this research paper is to provide information about the importance of accountant’s liability to third party. In 1931, the case of Ultramares Corporation v. Touche brought about a very crucial segment of accountants liability to their clients. In this case, accountants were found negligent to the creditors. At this time, accountants were not liable to creditors because they were not primary beneficiaries and

The situation that Willis and Company, CPAs have found themselves in regarding Geiger Company’s claim that Willis was negligent, underscores the need for public accountants to provide due professional care in all their contractual obligations. The level of fault that Willis is liable for can vary depending on the circumstances and approaches taken in examining this situation. This fact will be evident when examining this case from the Known User Approach, the Securities Act of 1933, as well as the Securities Act of 1934. These differing options result in varying degrees of liability that Willis and Company or any CPA firm can be held accountable for.

Please remember, as accountants we are held liable to our clients when we enter into contracts and are hired to perform services. The liability we face can come from items such as breach of contract, fraud and negligence. When an accountant enters into a contract, also known as an engagement, with a client the terms of said engagement are specified. In a contract an accountant has explicit and implicit duties. The accountant must perform all explicit duties in the contract. The implicit duties of the contract are implied, and the accountant agrees to perform them in a proficient and professional manner. If an accountant fails to perform the duties of the contract, he or she may be held in breach of the contract.

The criteria for the determination of the auditor’s liability to other parties apart from the clients are as follows:

Auditors should be independent of the client. Independent auditors have no incentives to aid the entity in presenting their results

Abstract:The purpose of this research paper is to discuss the proper level of segregation between audit and non-audit services, to ensure independence and instill public confidence. In the wake of numerous accounting scandals of Enron, WorldCom, etc, the importance of auditor independence has been brought to the forefront of the accounting profession. The U.S. Public Company Accounting Oversight Board (PCAOB) has taken a strict stance on auditor independence, which signifies that an auditor cannot provide business advisory services without impeding their autonomy. However, an analysis of the current auditor-client relationship reveals contradictions to the interpretation of absolute auditor independence. In recent developments,

Although, auditor owe no duty to the third oarties having financial interst in the company being audited, however, if the third party inform the auditor about their reliance on the auditor’s report before making the transection, and the suffers loss which might have foreseeable by the due course of auditors’ job, the auditors would be held liable to compensate the sufferr of the platiff for the compensation of loss.

Provisions such as limited liability on part of auditors, increased interest for shareholders, etc. are part of the Companies Act of 2006 in the UK. This Act includes limited liability by contract with regard to such an amount which is deemed reasonable and fair in all circumstances (Coffee, 2007). In the last few years, changes have been brought in terms of the legal regime in the UK’s governance system. For instance, since 1989, firms in the UK have been able to incorporate, in that the firms can form limited liability partnerships, wherein they can protect all the partners from any kind of personal bankruptcy unless the partners were responsible personally in any kind of faulty opinion in terms of audit. Nonetheless, firms in the UK have continued to choose abandoning the joint responsibility option for lucrative limited liability regime (Hicks, 2008). The firms in the UK have used the case of Arthur Anderson LLP to modify and reform joint and several liability based on two arguments and these were – collapse of a major firm under the pressure of aforementioned liability may leave the market concentrated; and liability risk can be considered as a barrier in terms of smaller firms who attempt to enter a concentrated market. Within the context of limited liability, there are more unique kinds of liabilities which are deemed to be missing from the Act

The title of the proposed research is as follows; ‘A review of auditors approach to audit risk in the UK’

This report discusses importance of auditor independence nowadays and how statutory, regulatory & code of ethics has been involved in enhancing it and how non-audit services impair the independence of auditors.

When we talk about the audit profession, we mean truthful and independent opinion about the financial and economic sphere. In the narrow sense, audit is an independent test for the reliability of the information in the financial statement of the company. Auditor is the oldest profession. The Latin word “auditor” means “listener”. It is generally agreed that the historical motherland of audit is England, where in the XIII-XIV centuries, the basic principles of auditing, such as honesty, competence and prudence were formed. In this essay, I would like to examine the role of auditor, their legal and professional requirements, benefits and limitations, and explain why an auditor is important.

Since BBA is a job oriented program, so internship is a mandatory part of this program. Realizing the fact, the department of Business Administration, Daffodil International University, has included a 90 days internship program in the course curriculum after the effective completion of the program. To comply with this requirement, I have joined in ACNABIN (CA Firm) as an internee where I had the opportunity to have the practical knowledge on overall auditing procedure. This opportunity has given me an opportunity to observe and perform real world knowledge about the audit procedure and auditor’s independence, which is followed by the chartered accountancy firms.