PORTFOLIO

The Liability of Accountants to Non-Clients for Professional Malpractice (Portfolio 5501)

Portfolio 5501, The Liability of Accountants to Non-Clients for Professional Malpractice (Accounting Policy and Practice Series), identifies and explains each of the standards under which the liability of accountants to non-clients is considered by the courts.  

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DESCRIPTION

Portfolio 5501, The Liability of Accountants to Non-Clients for Professional Malpractice (Accounting Policy and Practice Series), identifies and explains each of the standards under which the liability of accountants to non-clients is considered by the courts. Those standards have developed through the common law and, in some instances, have been legislated in each of the fifty states.
This Portfolio also examines how engagement letters and representation letters may be used as risk management tools to avoid or minimize potential exposure to claims of professional malpractice. As part of that examination, the Portfolio discusses the professional standards on engagement letters and representation letters and considers cases in which determinations of liability have been influenced by the content of those letters. Examples of illustrative engagement letters accompany the Portfolio.
The Portfolio includes a state-by-state survey of the legal standards for the liability of accountants to non-clients. For each state, key cases or statutes are identified and analyzed. Relevant statutes, principal cases and the provisions of Restatement (Second) of Torts § 552 (1977) accompany the Portfolio.
This Portfolio may be cited as BNA Tax and Accounting Portfolio 5501, Gold and Spinogatti, The Liability of Accountants to Non-Clients for Professional Malpractice (Accounting Policy and Practice Series). Within the Accounting Policy and Practice Portfolio Series, however, references to the Portfolios will include only the Portfolio numbers and titles.


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AUTHORS

LEON P. GOLD, ESQ.
Leon P. Gold, J.D., A.B., Harvard University (Magna Cum Laude); LL.B. Harvard Law School.

RICHARD L. SPINOGATTI, ESQ., SENIOR COUNSEL
Richard L. Spinogatti, J.D., B.A., Fordham Unviersity; J.D., Columbia University School of Law.

TABLE OF CONTENTS

Detailed Analysis

I. Preface

II. The Sources of the Rule of Law for the Liability of Accountants to Non-Clients for Professional Malpractice

Introductory Material

A. The Privity Standard

B. The Near Privity Standard

C. The Restatement Standard

D. The Reasonable Foreseeability Standard

E. The Balancing Test

F. The Legislative Standards

III. Engagement Letters and Representation Letters As Risk Management Tools

IV. Professional Standards on Engagement Letters and Representation Letters

A. Engagement Letters

B. Representation Letters

V. Principles and Trends in Case Law

A. Engagement Letters

1. Kitchens of the Oceans, Inc. v. McGladrey & Pullen, LLP

2. In re Refco, Inc. Sec. Litig.

3. Williamson v. PricewaterhouseCoopers LLP

B. Representation Letters

1. Dapremont v. Overcash, Walker & Co., P.C.

2. Ladd Furniture Inc. v. Ernst & Young

3. Ameriwood Industries International Corporation v. Arthur Andersen & Co.

4. Begier v. Price Waterhouse

5. Seafirst Corporation v. Jenkins

6. Mid-Continent Paper Converters Inc. v. Brady, Ware & Schoenfeld Inc.

7. Lumbermens Mutual Casualty Company v. Thornton

8. Rino v. Mead

9. Chemd Inc. v. KPMG Peat Marwick, L.L.P.

10. National Medical Transportation Network v. Deloitte & Touche

11. Unadilla Silo Co., Inc. v. Ernst & Young

12. Carnegie Int'l Corp. v. Grant Thornton, LLP

13. Alff v. State Pers. Comm'n

VI. State by State Survey of Legal Standards

A. Overview

B. Specific States

1. Alabama

2. Alaska

3. Arizona

4. Arkansas

5. California

6. Colorado

7. Connecticut

8. Delaware

9. District of Columbia

10. Florida

11. Georgia

12. Hawaii

13. Idaho

14. Illinois

15. Indiana

16. Iowa

17. Kansas

18. Kentucky

19. Louisiana

20. Maine

21. Maryland

22. Massachusetts

23. Michigan

24. Minnesota

25. Mississippi

26. Missouri

27. Montana

28. Nebraska

29. Nevada

30. New Hampshire

31. New Jersey

32. New Mexico

33. New York

34. North Carolina

35. North Dakota

36. Ohio

37. Oklahoma

38. Oregon

39. Pennsylvania

40. Rhode Island

41. South Carolina

42. South Dakota

43. Tennessee

44. Texas

45. Utah

46. Vermont

47. Virginia

48. Washington

49. West Virginia

50. Wisconsin

51. Wyoming


WORKING PAPERS

Working Papers

TABLE OF WORKSHEETS

Worksheet 1 Arkansas Statute

Worksheet 2 Illinois Statute

Worksheet 3 Kansas Statute

Worksheet 4 Michigan Statute

Worksheet 5 Mississippi Statute

Worksheet 6 New Jersey Statute

Worksheet 7 Tennessee Statute

Worksheet 8 Utah Statute

Worksheet 9 Wyoming Statute

Worksheet 10 Ultramares Corporation v. Touche Court of Appeals of New York (255 N.Y. 170; 174 N.E. 441; 1931 N.Y. LEXIS 660; 74 A.L.R. 1139)

Worksheet 11 Credit Alliance Corporation v. Arthur Andersen & Co. Court of Appeals of New York 65 N.Y.2d 536; 483 N.E.2d 110; 493 N.Y.S.2d 435; 1985 N.Y. LEXIS 15157 (1985)

Worksheet 12 H. Rosenblum Inc. v. Adler Supreme Court of New Jersey 93 N.J. 324; 461 A.2d 138 (1983)

Worksheet 13 Restatement (Second) of Torts § 552

Worksheet 14 AICPA Ethics Interpretation 101-3-Performance of Nonattest Service

Worksheet 15 Ratcliffe, New Guidance for Compilation and Review Engagements

Worksheet 16 AICPA Sample Engagement Letter - Compilation of Personal Financial Statements

Worksheet 17 AICPA Sample Engagement Letter - Compilation of Financial Statements Not Intended for Third Party Use

Worksheet 18 AICPA Sample Engagement Letter - Review of Personal Financial Statements

Worksheet 19 AICPA Sample Engagement Letter - Audit of Personal Financial Statements

Worksheet 20 Sample Engagement Letter - Audit: Financial Statements (Camico Mutual Insurance Company)

Worksheet 21 Sample Engagement Letter - Compilation - Management-Use-Only Financial Statements (SSARS 8) (Camico Mutual Insurance Company)

Bibliography

OFFICIAL

Statutes:

Secuities and Exchange Commission:

Court Cases:

State Law:

American Institute of Certified Public Accountants:

Public Company Accounting Oversight Board:

UNOFFICIAL

Books and Articles: