That the Certified Public Accountant (CPA) is duty bound to perform the assured services of financial audit subject to the reasonableness of disclosures and got freedom from the material misstatements which are accepted to the generally accepted accounting principles. As under the common law, the accountants and the professionals are held liable for the breach of any terms of the contract or for any of the negligent act done by her. While giving the services as an accountant or the auditor, the Certified Public Accountants have the duty of care towards their clients as well as towards the third party. It is furthermore submitted that under the Florida laws, the Certified Public Accountants can be sued for the recovery of the losses borne by the third parties due to the negligence of the Accountants in performing their duties. It is relevant to mention here that if the opinions of the Certified Public Accountants affects their clients as well as the investors, stock holders, creditors of the firm or the partners then they may be liable to compensate them for the misleading statements or report.
That it is not out of place to mention here that the Accountants play the major role in the financial system of any of the business. It is furthermore submitted that the accountants are the person who maintains and established the financial system of any of the business. The accountants are under the duty to prepare the financial statements which reflect the individual or the business’s financial status. The accountant should exercise the degree of care that the normal accountant would exercise. From the facts of the case, it is clear that Mona is duty bound to perform her act with due diligence and care, but she failed to do so. Under the common law, the accountants can be held liable for breach of contract, negligence or fraud. It is admitted the fact that the present case is the case of negligence whereby the gross negligency has been committed by Mona in performing her duties with due care and diligence. It is pertinent to discuss here that for proving the negligence on the part of the Accountants, the person should prove negligence such as the duty of the care existed with the accountant, the duty of care which was required to be made was breached, the person suffered the great injury and lastly the injury was due to the breach of the duty of care.
That it is the well-settled law that the Certified Public Accountants is having the duty of care towards their clients as well as the third party who secured loans to the firms based on the audit report of Certified Public Accountants. That the Securities Act of 1933 mandates the company to enroll with the Securities and Exchange Commission which should include the audited financial statements and other disclosures and if that statements found to be misleading or misrepresented then the company as well as the auditor (Certified Public Accountant) would be held liable. It is furthermore relevant to mention here that the to make out the liability, the security purchaser or the creditor only requires to prove that the loss was constant and it was due to the misleading statement and further they need not the show that the reports were negligent (Chaveerug & Leemanonwarachai, 2013). On the other side, the auditors to avoid the liability the CPA’s should prove that the financial statement, as well as audit report, was prepared with due diligence and the loss was not caused by the financial statement. That in Ernst & Ernst v. Hochfelder 425 U.S 185 (1976), it was specifically observed that the plaintiff is required to prove the intention of deceiving, manipulation or defraud and to avoid the liability the Certified Public Accountants are required to prove that they are not guilty of misrepresentation or negligence. But in the present case, it was proved that the creditors are suffering due to the negligent act of the CPA as being totally aware of the financial condition of the corporation, Mona did not show the exact report in their financial statement on the basis of which, the loan was disbursed to the corporation (“Financial Statements”, 2012).
Further, the Rule 102(e) of the Security and Exchange Commission deals with the “improper professional Conduct” as in the present case, she was required to do properly. In the present case, she had the duty to care and prepare a report in a proper professional way so; it might not cause any loss to the investors as well as other creditors. It is further submitted that the Rule 102(e) of the Commission Rules have three different definitions (Brown, 2015). The first is known as the intentional or knowing conduct which also includes the reckless conduct. Reckless in the general sense means the intentional or wilful conduct.
Further, the section 10(b) of the Securities Act claims fraud. It is pertinent to mention here that there are two types of negligence found in the 102(e) rules of the commission, the first is the single/first instance of highly unreasonable which results into the violation of the professional standards of the facts which the certified Public Accountant must know. The second needs the showing of the repeated examples of the unreasonable conduct which results in the violations of the admitted professional standards and should show the nonability to practice before the commission.
Conclusion:
In the end after going through the facts and circumstances of the case and after considering the legal aspect of the case, it is concluded that Mona, the newly licensed Certified Public Accountant is liable for the gross negligence and deficiency of care was proved on the part of CPA. It is concluded that as it was a duty of the CPA to maintain the financial statement and further she was aware that her statements were circulated in the bank for securing loan though the exact name of the bank was not known to her, but it does not make the effect on the liability of CPA. The law is very clear on this point that if there is negligence or lacks in the duty of care on the part of CPA, then the third party is liable to recover from the CPA as well as the company because the credit was sanctioned on the report of CPA (Miller & Nouri, 2015).
The registration statement is the set of documents which includes the prospectus of the company should be filed with the SEC before issuing the public offer. That the Certified Public Accountant (CPA) is duty bound to prepare the registration statement subject to the reasonableness of disclosures and got freedom from the material misstatements which are accepted to the generally accepted accounting principles. The duties and liabilities of Certified Public Accountants are fixed under the Securities Act of 1933 and the Securities Exchange Act of 1934. Various CPA’s have faith that they could not be held liable under the laws as their practices had not involved the securities. It is further relevant to mention here that Section 5 of the Securities Act, 1933 that the investors who purchase securities by the statements would sue the accountants for any losses suffered. Further Section 10(b) of the SEA of 1934 and Rule 10b-5 of the said act prohibits the deceptive devices.
That the accountants at the time of performing their services should comply with the Generally accepted accounting principles, in short, known as “GAAP” and Generally accepted auditing Standards, in short, known as “GAAS.” It is furthermore submitted that the Financial Accounting Standard Board considers the accounting conventions, rules and procedures constitute Generally accepted accounting principles at a given point in time. Generally accepted auditing Standards was established by the AICPA which set forth the professional qualities. It is the general practice that if the accountant would follow the procedures and rules set forth in the by the said boards, then they never are held liable for negligence. The violation of any of the Generally accepted accounting principles, in short, known as “GAAP” and Generally accepted auditing Standards, in short, known as “GAAS” prima facie established the negligence on the part of the accountants. As per Section 11 of the Securities Act, 1933, the auditor is liable to buyers for the securities of any wrong statements of the material facts or any misleading statements about the financial statements on which the auditor reported. In the present case, Charlene formed the registration report which faces the many misleading statements (Parrino, Schwab & Wertheimer, 2015). But the only remedy available to Charlene is to prove that she had performed her act with due care and diligence and it was the fault on the part of the corporation who did not provide the information which is the basis of the report. As it is clear from the facts that she tried her level best to find out the information but could not able to find the same. It is furthermore relevant to mention here that the investors should prove that they invest in the company after reading the report and by that report they invest in the company. In Herzfeld v. Laventhol, Krekstein, Horwath & Horwath, 378 F. Supp. 112, aff’d 540 F.2d 27 (2d Cir. 1976), the Hon’ble Court had specifically held that the plaintiff should establish that he or she actually relied on the financial statements (Sagarino & Corpuz, 2011).
Further in re John J. Aesoph and Derren M. Bennet the securities and Exchange Commission of India had penalized the two auditors for the professional improper conduct under Rule 102(2) of commission. It is furthermore submitted that it was specifically observed that the professional auditors failed the audit of the Nebraska based bank who credit the millions of dollars as a loan and suffered a loss during the financial crisis. While deciding the matter, it was held that the auditor is the duty-bound to make the report with due care and diligence rather than to merely relying on the management’s statements (Farrall, 2014). Moreover, in Re Brian Liab, the management had made the false representations which become the subject matter of the litigations and enforcement actions and after that under Rule 102(e) of the Commission Rules, the auditors were charged for not founding the misrepresentations. It is always the mater of the great debate that in view of the aforesaid circumstances, when and to what extent the auditor is held liable for the improper professional conduct but the answers are covered under Rule 102(e) of the commission rules. It is further submitted that on one side the duty of the auditor is to check whether the representation made by the management is correct or not and on the other hand, the management is also responsible for the contents of the financial statements and they are also required to provide the accurate and complete information required for the financial statements.
Conclusion:
In the end after going through the facts and circumstances of the case and after considering the legal aspect of the case, it is concluded that Charlene, the newly CPA licensed has not violated any of the provisions of the Securities Act as well as Securities Exchange Act. It is further concluded that the Charlene is not liable to any investors as she performed her duty with due care and there is no negligence on her part. Further, from the facts of the case, it is prima facie established that the investors never read the financial statement and without reading the financial statement if they invest in the corporation then the auditor is not liable as reliance is made on the above-stated case law (Schoenfeld, Segal & Borgia, 2017). So, after considering the facts, the Charlene is not liable to investors as well as SEC and the defense available to Charlene is prove that she performed her duties with due care.
That the Certified Public Accountant (CPA) is duty bound to perform the assured services of financial audit subject to the reasonableness of disclosures and got freedom from the material misstatements which are accepted to the generally accepted accounting principles. The duties and liabilities of Certified Public Accountants are fixed under the Securities Act of 1933 and the Securities Exchange Act of 1934 (Whitman, 1973). While providing the services as an accountant or the auditor, the Certified Public Accountants have the duty of care towards their clients as well as towards the third party. It is furthermore submitted that as per the Australian laws of 1933 and 1934, the Certified Public Accountants can be sued for the negligence in performing their duties. It is relevant to mention here that if the opinions of the Certified Public Accountants affects their clients as well as the investors, stock holders, creditors of the firm or the partners then they may be liable to compensate them for the misleading statements or report (Strasser, 2016).
That the facts of the case clear that the Roman misrepresented the actual information in preparing the proxy statement which attracts the offense of fraud under the Government Regulations. It is submitted that the fraud is discussed in two parts first as Actual Fraud which is defined as the when the accountant intentionally states the wrong facts to mislead the client and after that the client is injured due to the misrepresented facts of the accountant. The second one is the constructive fraud whereby the liability arises as the accountant has the duty towards the client and violates the same by making the misrepresentations. It is furthermore submitted that the client should rely upon the professional misstatements to get the claim for damages. From the circumstances of the present case, it is prima facie established that Roman has committed the fraud with the person who replies upon the financial statements and invested their hard earned money. As per Rule 10b of the Act prohibits the deceptive devices. As per Section 11 of the Securities Act, 1933, the auditor is liable to buyers for the securities of any untrue statements of the material facts or any misleading statements about the financial statements on which the auditor reported (“The Securities Act of 1933”, 1933). It is submitted that from the facts of the case, it is prima facie established that the negligence is on the part of Roman. It is further submitted that Roman due to lack of time used the financial report of last year though his duty was to prepare the proxy report with due care and diligence, but he was failed to do so. . A group of Cardozo investors who bring a class action lawsuit in Federal District Court against Ramon’s firm under the 1934 Securities Exchange Act is legally justified on their part as they invest their hard earned money in the investments relying upon the reports issued by Roman (Wen, Hao & Bu, 2015). They have the remedy to claim their loss from Roman as it was due to the negligent act of Roman. Similarly another group of investors who filed a civil lawsuit for monetary damages against Ramon, under the same set of facts, in the 11th Judicial Circuit Court for Miami-Dade County are also justified as the loss occurred due to the negligence of Roman, and it is the well-settled law that due to negligent act of the others why the other innocent persons would suffer (Martin, 1974).
That in First Florida Bank Vs. Max Mitchell and Co., the Supreme Court of Florida had held that when the accountant had failed to exercise the reasonable care in preparing the financial statement and relied upon that statements, the investors invest the money, then the accountant should be held liable to the third party for the negligent act. In this case, the petitioner bank had secured the loan to the respondent company after relying upon the financial statement of the Certified Public Accountant but later on it came to the knowledge of the petitioner bank that the financial status of the company is not that as shown in the financial statements (“The Supreme Court and Due Process of Law in Florida”, 1940). Thereafter the bank sued the accountant of the company before the Circuit Court, Hillsborough county Marrion Buck as the loan was disbursed after relying upon the financial statements prepared by the accountant of the company whereby the court had delivered the judgment in favor of the accountant to which the bank appealed in the District Court of Appeal who also confirmed the judgment delivered by the Circuit Court. Thereafter the bank appealed the same in the Supreme Court of Florida whereby, the Supreme Court held that when the accountant fails to exercise the ordinary care in preparing the financial statements of client and also personally delivers and presents the statements to the other party for securing loan then the accountant is held liable to the other parties for the negligent act and the case was remanded back to determine the question of liability.
Conclusion:
In the end, after going through the facts and circumstances of the case and considering the settled prepositions of law, it is concluded that due to the negligent act of Roman, all the investors are suffering and Roman is liable for filling the Proxy Statements in SERC with the wrong facts. It is further submitted that Roman must act with care and due diligence and the excuse of lack of time is no excuse, and it is the duty of Roman to provide the exact and correct report with the SERC as well as investors (Strasser, 2016). From the perusal of Securities Exchange Act, it is prima facie established that the investors can sue Roman for claiming their compensation as the loss suffered by them due to the negligent act of Roman.
References
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Anna, Y., & Rahayu, S. (2011). The Factors Affected Toward Profession Options as Accountant Public and Non-Accountant Public Selected. SSRN Electronic Journal.
Bressman, S., & Ghorra, T. (2010). FINRA implements same?day clearance process of shelf registration statements. Journal Of Investment Compliance, 11(2), 46-48.
Chaveerug, A., & Leemanonwarachai, T. (2013). Information technology risk capability on the audio quality of the certified public accountant in Thailand. International journal of business research, 13(4), 141-150.
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