Question 1

An accountant may be liable for malpractice if the accountant fails to inform a client of the tax consequences associated with selling a business.

Accepted Answer

An accountant has a duty to inform their client of any potential tax consequences related to their financial decisions. If the accountant fails to do so and the client suffers financial harm as a result, the accountant may be held liable for malpractice.

Question 2

The privity rule permits the filing of an accounting malpractice lawsuit by a third party against an accountant.

Accepted Answer

The privity rule typically prohibits third-party lawsuits against accountants for malpractice unless there is a specific relationship between the accountant and the third party that would create a duty of care. However, there are some exceptions to this rule in certain jurisdictions.

Question 3

When an accountant makes a contract to perform services, there is a duty to exercise the skill and care that are common for the accounting profession.

Accepted Answer

This is known as the duty of care and is a fundamental principle of the accounting profession.

Question 4

Any disclaimer by an accountant that excludes liability for malpractice based on negligence is void.

Accepted Answer

The answer of Any disclaimer by an accountant that excludes...

Question 5

A court will generally allow an action by a third party who acquires an accountant's work product without the accountant's knowledge or permission and is damaged because of a false statement in the work.

Accepted Answer

The answer of A court will generally allow an action...

Question 6

In an action for breach of contract, the statute of limitations runs from the date on which the harm is discovered.

Accepted Answer

The statute of limitations usually runs from the date of the breach of contract, not from the date the harm is discovered. However, some contracts may have specific provisions that alter this rule. It is important to check the applicable law and the contract's terms to determine the correct starting point for the statute of limitations.

Question 7

A disclaimer based on lack of knowledge will always protect an accountant from liability.

Accepted Answer

A disclaimer based on lack of knowledge may not always protect an accountant from liability. The accountant may still be held liable if they were expected to have the knowledge or if they should have known the information. Additionally, a disclaimer may not be valid if it is found to be fraudulent or if the accountant had a duty to disclose the information.

Question 8

A disclaimer that protects an accountant from liability for inaccurate reporting of certain specified financial information will be held valid if the accountant had no means of examining the information.

Accepted Answer

A disclaimer that limits liability for inaccurate reporting will be valid if the accountant did not have access to the information being reported and had no means of examining it. However, if the accountant had access to the information and failed to exercise due diligence, the disclaimer may not hold up in court.

Question 9

A client may recover tort damages from an accountant for fraud and gross negligence, but not for ordinary negligence.

Accepted Answer

The answer of A client may recover tort damages from...

Question 10

When a malpractice claim is brought by a third person rather than a client or patient of the defendant, the malpractice action should be based on a tort theory such as negligence, gross negligence, or fraud.

Accepted Answer

When a malpractice claim is brought by a third person, it is not an action in contract, but instead is based on a tort theory such as negligence, gross negligence, or fraud.

Question 11

When the privity rule is applied, a bank lending money to the client of an accountant cannot sue the accountant for malpractice.

Accepted Answer

The privity rule prevents a third party from suing a professional for malpractice if they were not in a direct contractual relationship with the professional. Therefore, in this scenario, the bank would not be able to sue the accountant for malpractice as there is no direct contractual relationship between them.

Question 12

Under the "known-user" rule, it is sufficient if a user is a member of a known class, even if the identity of the particular user is not known to the accountant.

Accepted Answer

As per the known-user rule, it is sufficient if a user belongs to a known class, and it is not necessary for the accountant to know the identity of that particular user. Therefore, option A is true.

Question 13

An accountant may be liable for malpractice if the accountant fails to detect signs that an employee of the client is embezzling.

Accepted Answer

An accountant has a duty to exercise reasonable care and skill when providing professional services to clients. This includes detecting and reporting any fraud or misappropriation of assets. If an accountant fails to detect signs of embezzlement by an employee of the client, they may be liable for malpractice.

Question 14

In order to be valid, an accountant's disclaimer of liability must be (1) clear and unambiguous and (2) non-conspicuous.

Accepted Answer

The answer of In order to be valid, an accountant's...

Question 15

General causation principles of negligence apply to the law of malpractice.

Accepted Answer

Malpractice is a type of negligence that occurs when a professional fails to meet the standard of care expected in their profession. Therefore, the general causation principles of negligence, such as establishing a duty of care, breach of duty, proximate cause, and damages, apply to malpractice cases as well.

Question 16

In many instances, malpractice is both a breach of contract and a tort.

Accepted Answer

Malpractice is a breach of the contract that exists between a professional and their client or patient, and it also involves a violation of the duty of care owed to the client or patient, which is a tort. Therefore, malpractice can be both a breach of contract and a tort.

Question 17

When an accountant fails to complete an accountant's contract, the accountant is still entitled to the accountant's fee.

Accepted Answer

If an accountant fails to complete their contract, they have not fulfilled their obligation to provide their services and therefore are not entitled to their fee. However, there may be circumstances where the accountant is entitled to a partial fee for work already completed. It ultimately depends on the specific terms of the contract and any applicable laws or regulations.

Question 18

Disclaimers of liability are valid when the circumstances are such that it is not reasonable to expect the accountant to stand behind certain data.

Accepted Answer

Disclaimers of liability can be valid if the accountant can show that the circumstances were such that it was not reasonable to expect them to stand behind certain data. This can include situations where the accountant did not have full access to all relevant information or where the client did not provide accurate information. However, disclaimers of liability cannot be used to protect against negligence or intentional misconduct.

Question 19

Breach of contract remedies are available to third parties against accountants because they are ordinarily considered third-party beneficiaries of contracts with accountants.

Accepted Answer

Breach of contract remedies are typically not available to third parties against accountants because they are not considered parties to the contract between the accountant and their client, unless the contract explicitly designates them as third-party beneficiaries.

Question 20

New York follows the "contact" rule in determining when third persons can sue accountants for negligence.

Accepted Answer

New York does follow the "contact" rule in determining when third persons can sue accountants for negligence. This means that a third-party can only sue an accountant for negligence if they had direct contact with the accountant and the accountant knew that the third-party would rely on their work.

Quiz 47: Accountants Liability and Malpractice