Bank of Stars
Student Coaching
Negligence
 Duty of Care Owed by Defendant to
Plaintiff
 Breach of the Duty of Care by the
Defendant
 Causation
 Damages
Duty of Care
 Foreseeability Test: Accountants owe a duty of
care to all foreseeable plaintiffs.
 Restatement View: Accountants owe a duty of
care to members of a restricted group of third
parties whom the accountants intend to influence
or those whom the accountants know their clients
intend to influence.
 Privity of Contract View: Accountants owe a duty
of care to all parties with whom they have a
privity of contract.
Breach of Duty of Care
 Professional Standard: In performing services, an
auditor has the duty to have that degree of
learning and skill ordinarily possessed by a
reputable certified public accountant practicing in
the same or a similar locality under similar
circumstances.
 GAAP is Relevant: In determining whether the
accountant fulfilled its professional duties, one
may consider, among other evidence, whether the
accountant’s work complied with Generally
Accepted Accounting Principles.
Causation
 Causal Connection: there must be a causal
connection between the negligent conduct
and the resulting injury.
 But For Test: But for the defendant’s
negligence, the plaintiff would not have
sustained the loss.
Asset Valuation
 Notes exchanged for property, goods, or
services are carried on the balance sheet:
 At the market value of the item
exchanged if this is readily
determinable.
 At the present value of the future cash
receipts on the note discounted at the
borrower’s rate of interest.
Accountants’ Duty of
Care to the Public
 Members of the AICPA accept the
responsibility to serve the public interest
with integrity, objectivity, and due
professional care.
 Members may encounter pressures from
the groups it serves (including clients,
credit grantors, etc.)
 When members fulfill their responsibility
to the public, client and employers’
interests are best served.
Ethics Definition


The study of what is right and wrong.
Refers to actions that would be harmful to
others or result in social consequences.
The Difference Between
Ethics and Laws


Similarities
 Laws and Ethics both refer to proper
and improper behavior
Differences
 Laws are formal: written rules
 Ethics are informal: many subtleties
How to Analyze Ethical
Problems in Business

Guidelines to use to help us make ethical
decisions
 Utility: Cost-Benefit Analysis
 Rights: Determining and Protecting
Entitlements
 Justice: Is it fair?