South-Western Legal Studies in Business
SW LEGAL'S CASE UPDATES—ACCOUNTANT'S LIABILITY
SW Legal's Case Updates is a SW Legal Studies service to provide briefs of the latest state and federal court cases. Review the summaries and, for cases of interest, select the case brief. If you cannot find a case of interest, return to Topic Index .
Title
Summary
Surety Bond Issuer Reasonably Relied on Negligently Prepared Audit
Briefed Case
Appeals court found accounting firm liable for negligence in its audit practices of a firm it worked for. The accountants knew the audit statement would be used for financial purposes, as it was, and it was directly linked to a large loss suffered by a surety bond issuer that relied on the audits.
(Updated April 2009)
Accountant Commits Securities Fraud by Failing to Correct Financial Problems
Briefed Case
Appeals court held that an investor presented sufficient evidence of losses incurred when he relied on audited financial statements that contained errors for years. Failure to correct the problem can make the auditor liable for investor losses.
(Updated June 2007)
Accountants Not Liable for Deepening Insolvency of Scam Corporation
Briefed Case
Appeals court held that the failure of a CPA firm to uncover the scam at the heart of a corporation did not support a malpractice claim since there was no evidence that any of the losses suffered in the collapse of the firm were due to the behavior of the accountants.
(Updated December 2006)
CPA May Be Disciplined for Actions Not Directly Related to Public Accountancy
Briefed Case
Appeals court held that a state board of accountancy could impose discipline on a CPA who lied to her employer about her marital status in order for her ex-husband to have medical insurance. The deceit involved fiscal dishonesty for which discipline could be imposed.
(Updated June 2005)
Courts Must See Substantial Evidence of Misrepresentation by Accountants in Stock Fraud Claims
Briefed Case
Appeals court held that a district court improperly allowed a securities fraud suit to be filed against an auditor based on the fact that the stock price fell and a claim was asserted that fraud was involved. For such suits to proceed, the court must do an analysis of evidence that indicates a possibility of success in court.
(Updated October 2004)
Loss Due to Negligence Must Be Reasonably Foreseeable
Briefed Case
Oregon high court held that an accounting firm would not be held liable for losses due to a stock sale that was delayed due to accounting errors. The decline in stock price was due to market forces, not due to accounting errors that delayed SEC filings.
(Updated February 2004)
Court Upholds Revocation of CPA License
Briefed Case
Appeals court upheld the decision of the State Board of Accountancy to revoke the CPA certificate of an accountant found by the Securities and Exchange Commission to have failed to perform due professional care in the audit of a public firm.
(Updated January, 2004)
Accountants Liable for Investment Losses Caused by Treasurer's Bad Behavior
Briefed Case
Appeals court upheld a verdict against an accounting firm finding it liable for most of the losses caused by the treasurer of a college who engaged in bad investment practices. There was professional negligence and breach of contract for failure to notify the board of problems that should have been uncovered.
(Updated November, 2002)
Innocent Partners Liable for Losses Caused by Other Partner's Fraud Against Client
Briefed Case
Appeals court held that the innocent partners in a accounting partnership were vicariously liable for the losses caused to a client because another partner stole the client's money. Because the loss was caused by fraud, the innocent partners may not be relieved of liability by bankruptcy proceedings.
(Updated January 1, 2002)
Investors Who Did Not Rely on Audit Statements May Not Sue for Dama
Briefed Case
Appeals court upheld the dismissal of suit brought by investors of a bankrupt firm who sued the accounting firm that had audited the firm for several years and prepared financial statements for a public offering of securities. There was no reliance on the reports, so no basis for liability for negligence in the performance of accounting duties.
(Updated October 1, 2001)
Insurer Did Not Rely on Financial Statements that Failed to Reveal Fraud
Briefed Case
Appeals court held that an insurance company cannot sue an accounting firm for the losses it had to cover even though it caused by fraud by management of a firm that went bankrupt. Since the insurer did not rely on the financial statements prepared by the CPA firm, it could have no cause of action against the accountants.
(Updated October 1, 2001)
SEC's Failure to State Clear Standards Means Proceedings Must Be Dropped
Briefed Case
An appeals court reviewing an SEC finding that accountants had engaged in improper professional conduct held that since the SEC failed to articulate a clear standard that could be understood, the proceedings against the accountants had to be dropped.
(Updated April 1, 2001)
Concurring Partner May Be Held Responsible for Audit Errors
Briefed Case
Appeals court upheld SEC finding of improper conduct by concurring partner who failed to investigate the peculiar audit done of a property being considered for sale. His willingness to accept what he was told by the company constitutes recklessness.
(Updated October 5, 1998)

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