Video: Common Law Duties and Liabilities to Clients and Third Parties - Practice Questions

In this lesson, Nick Palazzolo, CPA, tackles the gritty details of common law duties and liabilities of accountants to their clients and third parties through engaging practice questions. He kicks things off by exploring what elements a client must prove for an accountant to be held liable for common law negligence, dispelling misconceptions with his characteristic humor. Nick then navigates through a scenario involving American Corp and Baker CPA to dissect the best defensive strategies against claims of common law fraud. This exercise provides keen insights into the legal ramifications of auditor's work and sharpens problem-solving skills by breaking down real-world situations one might encounter in the field. Remember, Nick reminds everyone at the end: keep studying diligently, tackle plenty of practice questions, and maintain confidence because success is within reach.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Moving on to our wonderful multiple choice questions with our wonderful candidates. It's time to see what we got. We got two questions here for you. First of which, which of the following pairs of elements must a client prove to hold an accountant liable for common law negligence? How dare, how dare they? Accountants are perfect. You could never come after an accountant for anything, including negligence, right? That is not the case because we know from our lesson that common law fraud is gonna require five elements all to be met. Those are going to be, stay with me. If you don't have it memorized yet, all good, but you should definitely have it memorized. We want, we need to prove misrepresentation of a material fact. As mentioned, you can't just have, you know, $1 fraud. I mean, sorry, but that's not that big of a deal. We need center, which is intent to deceive. So, okay, that's a possibility. But a violation of GAAP, I'm just, I know I'm only on point two, but no, there's nothing to do with GAAP here. I mean, that's a total distractor. We're not doing anything involved with GAAP. I mean, maybe the financial statements you're doing have to do with GAAP, but this is just a complete distractor. So don't worry about that. That is a distractor. We also need intent to induce reliance. So again, we're kind of dealing with this fraudulent situation. We also need reasonable reliance and lastly, actual damages to the party. So which of these looks like that may be the case? As we're reading through them here, freedom from contributory negligence and privity. Nope, didn't really sound like what we're looking for. What about willful misrepresentation and breach of the accountant's duty of care?

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Federal Tax Procedures

Module: 2 Concepts, 35 Videos

Common Law Duties and Liabilities to Clients and Third Parties Overview

1:52

Introduction to Common Law Duties and Liabilities to Clients and Third Parties

1:35

Legal Liabilities of Tax Preparers

7:08

Example of a Breach of Contract