December 2011

The Accountant/Attorney Liability Reporter

Inside this issue:

Accounting Firm Liability to Creditors
By Amanda Sirk
Federal District Court in Tennessee held that an accounting firm (“Accounting
Firm”) which audited a now bankrupt company (the “Company”) could not escape liability from creditors (the“Creditors”) on summary judgment, and the Creditors’ claims would have to be decided by a jury. The Accounting Firm’s arguments that (1) the statute of limitations barred the claim, (2) it owed no duty to the Creditors, and (3) its actions or omissions did not cause the Creditor’s damages, all failed to persuade the Court to dismiss the Creditors’ claims before trial.

Accounting Firms Successful in Dismissing Fraud and Other Claims
By Justin Jagher

In a recent case involving allegations that the defendant accounting firms took part in a fraudulent scheme to divert and steal funds from the plaintiff, two accounting firms were successful in persuading the Court to dismiss all of the claims. A New York Federal District Court ruled that the plaintiff failed to show that the accounting firms violated the standard of care or engaged in fraudulent behavior.

California Court of Appeals Interprets “Accrual” for Tort Claims Against Financial Advisors as Occurring When an Adverse IRS Determination is Made
By Peter Lenart

A recent California Court of Appeals decision for the Fourth District, Kelter v. Yelland, addressed an involved statute of limitations argument concerning claims of fraud, breach of fiduciary duty and negligence arising out of tax and investment services of financial advisors and accountants. The Court’s decision functionally expanded the statute of limitations for accountants counseling clients with respect to tax shelter investments. Although narrowly written, the decision also creates potential concern for attorneys involved in tax law and those who provide legal advice regarding tax shelter investments, sales of real property, and other transactions designed to defer or avoid tax liability.

Emerging Market Audit Risks – PCAOB Audit Practice Alert
By Cheryl Waterhouse

Emerging markets offer opportunity for accounting firms, but with such opportunity comes risk. The recent PCAOB Staff Audit Practice Alert No. 8, Audit Risks in Certain Emerging Markets highlights the heightened fraud risks for auditors working with companies in such markets. The risks identified are important for accountants to be wary of in other circumstances as well.

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