Brady,a CPA,is hired by Stanlee Inc. ,to audit its financial statements.Due to his negligence,Brady fails to discover that Tom,chairman of the board of directors of Stanlee,has embezzled $300,000 of the company funds.Brady finishes the audit and issues an unqualified opinion.Six months later,Brady reads in the newspapers that Tom has been caught for embezzling a total of $800,000 of company funds.Tom has resigned and the company funds have been fully recovered from him.Stanlee sues Brady.How much is Brady liable for?

Question

Quizplus · Accepted Answer

When an accountant negligently fails to discover embezzlement,generally he/she is liable to his/her client only for an amount equal to the embezzlement that occurred after he/she should have discovered the embezzlement.The accountant is usually not liable for any part of the embezzlement that occurred prior to the time he/she should have uncovered the embezzlement unless his/her tardy discovery prevented the client from recovering embezzled funds.Since Stanlee was able to recover the full amount embezzled by Tom ($800,000),Brady will be held liable only for the amount embezzled after he should have discovered it ($500,000).

Brady,a CPA,is Hired by Stanlee Inc