Question

1. What needs to be proven in order to find an accountant liable for negligence? Explain the four elements.

2. Conduct some Internet research and find a case that involves an accountant being found negligent. Briefly state the facts of the case and explain the court's decision. Provide at least a paragraph of your analysis--do you agree with the court's decision--why or why not?

STUDENTS MUST PROVIDE A REFERENCE TO THE CASE THAT IS USED.

Answer 1

In order to determine the liability of negligence following four elements are taken care of:

- Professional Skeptism: It means holding trait of blood hound rather than watch dog, It means that should have questioning mind.

- Due Diligence: Lack of Due diligence over a term of suspect / amount of fraud

- Substantive procedures: Once doubt is being observed rather than giving unmodified report can perform further substantive procedures to substantiate the same.

- Intent to deceive: Here the negligence is associate with intention to deceive.

By relating above elements with the Satyam Computers Scandal case emerged in India in 2008.

Going through the facts: The Fraud is based on the greed of having more property same is acheived through his IT company and Construction Company Maytas Infra. Falsifying Account, Overshowing Cash and Bank Balances. Purchasing land specifically agricultural land so that same shall be kept out if the Income tax income provision, Showing fictiious sale and increasing the debtors value and incrasing the worth of the company.

Lack of Actions by Accounant : Third party confirmation, Reconciliation of Accounts Specially bank, these are the events of negligence left unattended by the accountant.

In respect of Court decision they were imposed with hefty penalities, although they are very minimal in respect of the fraud committed as it has very high impact on the market also. apart from that other disciplianry action taken by the regulatory body managing those accountants.

License to practice is cancelled by the Regulatory body operating in India.

At the end it can be concluded, that court decision is very apt in the above situation and after that further regulations has been changed and made further strict and stringent laws in respect of accounting reporting amd also with the listing authorities.