negligent misstatement essay

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    THE LIABILITY OF AN ACCOUNTANT 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. Contrary to some belief, accounting is not a “cakewalk” career. Accountants do not sit at a

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    Ernst & Young was the auditing firm of HealthSouth from 1984 to 2002. Due to financial hardship Healthshore grew desperate and developed a scheme to deceive not only shareholders but Ernst and Young. Inevitably whistleblowers came forth and a lawsuit ensued. The shareholder’s lawsuit against Ernst and Young never went to trial. However, the lawsuit against Healthshore ended in settlement. Though a travesty to the shareholders and employees not involved with the fraud, this fraudulent activity was

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    obtained no help for increasing the salaries. Overall, he suffered financial loss from the negligent misstatement. To succeed in a negligence action, the plaintiff must

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    skills successfully when completing an engagement, the action was unintentional and thus only negligent. Like previously stated, an auditor does not have the responsibility to uncover or detect any fraud or material misstatements. However, if the CPA failed to uncover a fraud that was a fraud deemed to be reasonably to be uncovered by an accountant and yet the CPA failed to detect, then the CPA was negligent and it is liable for damages. The CPA, then will be liable for any amount of money lost after

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    Common Law Fraud Case

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    needs to be proven. Since the embezzlement scheme was carried out by the President, the accountant cannot be sued for actual fraud. Constructive fraud occurs when a professional either misstated a material fact, acted recklessly, or was grossly negligent. Reliance needs to be proven, but privity is not required. The likelihood for the accountant being held liable for fraud is minimal. Under Statutory Law, the two relevant

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    False Difficulty

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    True/False Questions 1. Fraud is defined as failure to use 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

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    Case List

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    Associates Pty. Ltd. v Parramatta City Council (1981) ALJR 713 Duty of care in purely economic loss caused by negligent misstatement cases San Sebastian P/L v The Minister (1986) 61 ALJR 41 Duty of care in purely economic loss caused by negligent misstatement cases Esanda Finance Corp. Ltd. v Peat Marwick Hungerfords (1997) 142 ALR 750 Duty of care in purely economic loss caused by negligent misstatement cases Page 3 of

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    QUESTION ONE A company is developing a new drug which it expects will significantly reduce the disease known as rheumatism. The company has conducted many tests on the drug. One of the scientists is concerned that there are some side effects which have not been fully investigated. The company requests a confidential report from a number of other scientists about these side effects. The scientists are paid $500,000 each to investigate the drug and compile the report. These scientists are also required

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    .4 A Negligent Misrepresentation A negligent misrepresentation is the one, which came into existence or was made recklessly, or without convincible justifications for considering it to be factual. From what the research has driven, conceptually, the developments of negligent misrepresentation started with Hedley Byrne & Co Ltd v. Heller & Partners. Nevertheless, a solution in tort for negligent misinformation that the other party has provided. In addition, consider that a contract would be created

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    Question 1 Kennett v. Nationwide News Pty Ltd concerned a newspaper article published one day after the then Victorian Premier - the state’s Political leader - and his wife announced their separation. The Australian ran a feature article, headed ‘A House Divided’, which examined stresses facing the couple in public life. The plaintiff pleaded four imputations : • the Plaintiff, whilst living with his wife Felicity, was sexually involved with other women; • the Plaintiff, whilst living with his

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