Contract Law Restricts Third Party Users Of Suing A Professional

Two of the three partners of the firm that performed the audit for the district had 55% ownership in the company that sold the district its financial management software “finance manager”. The partners’ role as vendors violated the general standard of independence under generally accepted government auditing standards. Also the auditors received a commission from the sale of another software called “student manager” and receiving commissions is prohibited by the AICPA. Also there were fundamental problems with their audit planning and efforts to test financial records. The CPA firm work that was so flawed and so far below professional standards that it failed to identify the millions that were stolen.

The CPA firm should not issue an unqualified opinion based on these circumstances. The unpaid accounting fees may cause the CPA firm to have doubts about the client’s ability and willingness to pay for its services. As a result, the CPA firm’s judgment may be influenced by these doubts, and it may not be able to properly evaluate the client during the audit in a manner that is unbiased and impartial. Instead, the CPA firm should issue a qualified opinion that discloses the potential lack of independence caused by the past due billing. It is essential for CPAs to follow the standards of independence so that they maintain a reputation of integrity among the public (Dodaro, 2013).

Most states use that a duty to care belongs to “anyone or limited foreseeable class of persons whom the CPA knows will be relying on the CPA’s work.” In this case Tricontinental could be relying on PwC’s work, however, Tricontinental is the company been bought. In most cases lenders and investors are those that a CPA would have a duty to care towards. During the negotiations Tricontinental is neither a lender nor an investor. The investor in this case is Anicom for purchasing Tricontinental and there is no lender. Therefore, a majority of states would rule that Tricontinental may not sue for negligent misrepresentation. However, a minority of states uses an Ultramares decision in which: “limits CPA liability more narrowly to persons in privity of contract with CPA (client) and intended third party beneficiaries. In this situation a third party could be a bank that is going to get a loan as the result of

The CPA is there to help the business. In this case, the CPA was not the best, but the CPA could help with the financial process. Setting better controls, which would make his job then easier.

According to section 150.1: The principle of professional behavior imposes an obligation on professional accountants to comply with relevant laws and regulations and avoid any action that may bring discredit to the profession. This includes actions which a reasonable and informed third party, having knowledge of all relevant information, would conclude negatively affects the good reputation of the profession [ (Chan, 2004) ].

According to records found, representatives from Grant Thornton attended a meeting on December 1998 between the OCC and management of Keystone Bank. This meeting was in regards to the findings and conclusions of the OCC’s 1998 report of examination. This meeting informed Grant Thornton of Keystone’s misstatement of about $90 million in assets. In addition to the misstatement the OCC discovered what appeared to be a deliberate mischaracterization of $760 million of the bank’s assets which calculated the bank’s risk-based capital for call reporting purposes. Due to the information given at the meeting Grant Thornton classified Keystone’s audit as a maximum risk audit (Grant Thornton LLP v. the OCC, 2008). In order for an auditing firm to properly prepare for an audit they must assess the risk and take into consideration whether it was caused by error or fraud. An auditor is required by the Generally Accepted Auditing Standards (GAAS) to obtain the proper knowledge of the business that is being audited so that it allows them to understand the transactions, events and practices that could have substantial impact on the financial statements of the entity. If an entity has a high detection risk, similar to Keystone Bank, the auditor is required by GAAS to “modify or expand procedures, particularly in critically important areas” so that an auditor is not satisfied with anything less than credible evidence (“Generally Accepted Auditing

This case established that an auditor could be sued by a primary beneficiary for damages from negligence. A primary beneficiary is a party that has a direct benefit from the audit. Non-privity parties could also sue for gross negligence. This increased the auditor’s legal exposure to third parties. The SEC of 1934 reflected these changes and many others; one significant change was that auditor’s had a much higher litigation risk due to their new responsibility to third parties.

a. I think Bobson & Lleyton will be liable to Asheville Furniture for the purposeful overstatement of inventory on Sleep Time Beds’ books. B&L’s managing partner violated AICPA code of professional Conduct by colluding with its clients to inflate its inventory. He rendered himself independent during the engagement, because he possibly took bribe from the management and agreed to be part of the corporation. The accounting firm was also liable becasue the managing partner actively participated in fraud. The overstatement in the financials could directly cause damage for Asheville Furniture, who is the user of the audit report prepared by B&L.

Vaughn was politely asked whether Walker had taken the CPA exam and offered to lend a set of CPA review manuals, but Walker lied and declined the offer. Walker

AICPA Code of Professional Conduct principles prevents vises such as fraud that are experienced in accountancy field. Audit is the best measure of the effect of the fraud that are imposed to investors by accountants. The relationship of the investors and account holders are supposed to be affirmed through auditing to ensure accounting principles are upheld(Weirich, Pearson, & Churyk, 2010). Improper loss of the funds through propagation of the accountant officer should be treated as fraud and criminal activity that should lead to prosecution. Therefore, the paper seeks to relate two fraud cases that have been audited and presenting AICPA Code of

there is no violation. Rule relationships on firm independence. A CPA has any direct or a material indirect financial interest in the attest client. The firm independence does not impaired direct interest must be less than 5%. Fran Martino didn’t hold 5% of Scott company outstanding equity securities.

According to Ethical Ruling No. 100.18, financial self-interest threat, a potential benefit to a member from a financial interest in or from some other financial relationship with an attest client would be unethical for having a direct financial interest or material indirect financial interest in the client (AICPA, 2013). Also, according to Ethical Ruling No. 101.2 Independence, Independence shall be considered to be impaired if someone had or was committed to acquire any direct or material indirect financial interest in the client (AICPA, 2013). With that being said, the CPA being asked by the client to evaluate various commercial service bureaus is not entirely independent or objective in this case because, several partners in the CPA’s firm has a material interest in the potential firm that will be referred to his client. This could also be a

True. If gross negligence is proven, the CPA firm can and probably will be held liable for losses to

Imagine trusting your hard-earned money like your retirement savings to a financial adviser or Certified Public Accountants (CPA) only to lose it all in a fraudulent Ponzi scheme. In today’s world of business many organizations, financial planners and accountants are in the news due to the financial ethical breaches that have affected their customers, employees, and the general public. A CPA has to be responsible for their audits and take any punishments as a result of their mistakes, incompetence or illegal actions. CPAs are expected to have integrity in their work,

The lack of independence for external auditors will lead to the neglect of auditing risks (William R.K., 2003), which are the main reasons for the failure of certified accountants and professional accounting organizations. The consequence of the external auditors deprived of independence would be very serious. And there are many cases, which aroused by the failure of external auditors and most are related to the lack of independence. One famous example is the bankruptcy of Enron and the role played by its external auditor, Arthur Andersen (Todd, S., 2003). Arthur Andersen was once one of the biggest accounting companies in the world, and was canceled for the involvement in the Enron bankruptcy scandal.