Accountants Legal Liability; The past, The present, and The Future

Accountants Legal Liability : The Past , the Present , and the Future Accountants Legal Liability : The Past , the Present , and the Future

Contents

1 . Introduction

2 . Analysis and Discussion

2 .1 The Ever-changing Environment and its effects

2 .2 The Fairness of the Blame on Accountants

2 .3 History of Auditor 's Legal Liability Case Law

2 .3 .1 The Ultramares Doctrine

2 .3 .2 The Different Judicial View Points

2 .4 Perceived Causes of Increasing Litigation against Auditors

2 .4 .1 . Unrealistic Expectations

2 .4 .2 . Deep Pockets Theory

p 2 .5 Present : Auditor 's Legal Liability

2 .5 . Will the recent restrictive rule apply in the case of Enron

2 .6 Future : Accountants Liability to Third Parties

2 .7 SysTrust : A New Technology

2 .8 Possible Remedies

2 .8 .1 Observing strict standards of professionalism

2 .8 .2 . Improvement in Company 's Disclosure

2 .8 .3 . Following the Five Step Program

3 . Conclusion

4 . Bibliography 1 . Introduction

This seeks to analyze and discuss the development of the accountants ' legal liability from the perspective of the past , of the present and of the future . Since it is the courts that finally declare the responsibilities of the auditors , this will therefore look into different approaches adopted by the courts among the different states of the Unites States of America

2 . Analysis and Discussion

2 .1 The Ever-changing Environment and its effects

Many things have changed . The accounting profession was not spared of changes not only from the responsibilities of the practicing accountants but also the extent of their liabilities . Before , the profession was safe where professionals were secured in their careers The profession is now a common to have worries and risks . What used to be the Big Five from 1998 to 2002 , is now called the Big Four with the getting out of Arthur Andersen having involved in the 2001 Enron scandal (Wikipedia , 2006

Prior to 2002 , accounting firms were already reported to have not less that than thirty billion dollars in claims outstanding against them According then to reports involving a survey of partners of these big firms , about thirty three percent had responded that they abandoned the field of auditing practice mainly attributing their reasons on issues of the ever increasing legal liability . This observable fact was then occurring both in the United States and in Europe . Some of the firms sued then in London included PricewaterhouseCoopers and Ernst Young for eight billion dollars in the latter 's audit of he Bank of Credit and Commerce International

Up to this time , some quarters in the accounting profession are complaining about the court cases because of unrealistic expectations from the profession . When something bad happens to a company like when it does not earn profits , shareholders point an accusing finger to the accountants for not ringing an early bell of financial misery . In reaction , accountants or auditors respond by saying that the public expects too much . It would mean that these shareholders are making these accountants insurers of their...