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Negligence Liability of Accountants

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Negligence Liability of Accountants
Subject: Negligence Liability of Accountants
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Facts
By law, accountants may be responsible for customers that hire them in various legal theories, including contract, fraud and negligence. Accountant malpractice happened when he or she violates the duty of reasonable care, knowledge, skills and judgment that he or she is due to a client or to the laws to provide auditing and other services.
South Asset Management Co hired TWD, an accounting firm, to audit its financial statements for several years and then for an initial public offering of securities. The company understated its expenses and overstated its earnings by engaging in fraudulent capitalization practices for years. Reports showed that Southern Asset Management Co knew about these practices. TWD did not discover the true financial condition of South Asset Management; South Asset Management went bankrupt shortly after assurances that offer audits. Investors in South Asset Management Co sued TWD negligent audits.
Accountant's criminal liability According to federal laws accountants can be criminally liable for violating certain federal and state securities laws and for other law violations. The Enron scandal, revealed in October 2001 led to the Sarbanes-Oxley Act of 2002 with new rules on auditor independence, Enron was attributed as the biggest audit failure at that time; the creation of the board of public company accounting oversight, corporate governance and certification requirements, whistleblower protection, statutes of limitations widespread and more severe penalties. Sarbanes-Oxley act also increased the accountability of auditing firms to remain unbiased and independent of their clients, meaning that accounts can be also prosecute for their clients crimes
Issues
• Should accountants be liable for their clients?
• Accountant who unknowing/knowing causes to be made a false or misleading statement in any
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