Key Terms
Established when there is a substantive legal relationship between two or more parties
In the Ultramares v. Touche this company falsified their accounts
What is Fred Stern & Co?
This major drug distribution company overstated their assets by $19 million.
In this case the auditors were criminally charged with securities and mail fraud for filing and certifying false financial statements
What is US. v. Simon?
Asks how likely it was that a person could have anticipated the potential or actual results of their actions.
What is foreseeability?
This case signaled a shift away from strict privity to holding auditors liable to known and foreseeable users of audits.
What is Rusch Factors, Inc v. Levin?
This case was during the bowling alley boom.
What is Escott v. BarChris?
This company engaged in aggressive and misleading sales practices designed to inflate revenue and boost stock prices
What is National Student Marketing Corporation?
Carelessness in performing duties
What is negligence?
This case expanded liability to ANY reasonably foreseeable third parties
What is Rosenblum, Inc. v. Adler?
This company sold fake life insurance policies
What is Equity Funding Corp?
In this case the auditors were criminally convicted of securities fraud and conspiracy for signing off on false and misleading reports and they went to jail.
What is US. v. Natelli
Extreme carelessness or reckless disregard for standards
Gross negligence
This case found that auditors are not liable for ordinary negligence to third parties without privity, but they may be liable for fraud or gross negligence.
What is Ultramares v. Touche?
In this case the Supreme Court established that scienter is required and mere negligence is not enough.
What is Ernst & Ernst v. Hochfelder?
This firm resisted when they were subpoenaed by the SEC to provide work papers for their client
What is Arthur Young & Co. ?
Refers to the intent or knowledge of wrongdoing
What is scienter?
Case determined auditors were not liable unless it met the three part test: (1) auditor aware of purpose, (2) plaintiff reliance, and (3) some link between parties
What is Credit Alliance Corp. v. Arthur Andersen & Co.?
In Escott v. BarChris Construction Corp., the court held auditors liable under Section ___ of the Securities Act of 1933 for failing to conduct a reasonable investigation.
What is Section 11?
This "____ ______" function demands that the
accountant maintain total independence from the client
at all times, and requires complete fidelity to the public
trust.
What is public watchdog?