bus 415 unit 8 responses

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** There are two responses. Write a 100 word response for each.

Response 1:

Accountants and professionals are held liable for assigned duties and must understand how their opinion of a company effects those internally, as well as, externally. If an accountant states an opinion that influences a third party, such as a creditor, they can be held liable. If liable, charges are based on three different rules of liability to third parties that can be used.
The Ultramares Rule is a result of the Ultramares Corp. v. Touche case from 1931, where Fred Stern & Co. was hired to review the financial records and prepare a balance sheet. Touches’ firm provided the client with the certified balance sheet that stated its net worth, which was later found to have been overstated. In reality, Stern & Company’s liabilities were more than its assets. Due to the certified balance sheet provided by Touche’s firm, Ultramares Corp., loaned Stern & Co., large amounts of money; who later filed bankruptcy. It was determined that the company’s records had been falsified internally, and as a result, Ultramare Corp. sued the accounting firm, Touche, for negligence. From Ultramares Corp.’s, standpoint, it could have all been prevented if the firm hadn’t certified stated net worth on the balance sheet. The ruling by the New York Court of Appeals was in Ultramare Corp.’s favor. The case later created a requirement of privity that says an accountant owed a duty of care only to the primary client, who in this case is Stern & Co.
The Restatement Rule exists due to the Ultramares ruling that says an accountant has a duty to provide an accurate opinion and that financial statements are used externally by creditors to determine a company’s financial abilities. The restatement rule has since been adopted in the majority of courts as the Restatement (Third) of torts that hold accountants liable for users of a client’s financial statements. The applied rule holds the accountant liable to those who will benefit and use the statements as guidance to supply information or to whom the recipient intends to influence.
Then, we have the Reasonably Foreseeable Users rule that is used by a small minority of courts. The rule is used for any user that is reliant on an accountant statements or reports. Yet, accountants and other professionals believe it causes an unnecessary liability to the professionals.
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References
Miller, R.L., & Jentz, G.A. (2016). Fundamentals of Business Law today: Summarized Cases (10th Ed.). Mason, OH: Thomson-West Publishing. ISBN: 978130507544

Response 2:

If a company’s securities are sold to public investors, they must abide by the Sarbanes-Oxley Act. Therefore, securities are registered under Section 12 of the Securities Exchange Act of 1934. It is imperative that an auditor is separate and independent of the companies that is audited, otherwise would probably cause a conflict of interest. The Title II of the Sarbanes-Oxley Act requires that Registered Public Accounting Firms (RPAF), that is a public accounting firm to not provide audit and non-auditing services to the same client. Examples are: (1) bookkeeping or other services related to the accounting records or financial statements of the audit client, (2) financial information system design and implementation, (3) appraisal or valuation services to the same company, (4) management functions, (5) broker or dealer, investment adviser, or investment banking services. Second, an audit committee of a company must pre-approve an auditing service. Following Sarbanes-Oxley Act eliminates the conflict of interest that would be apparent in each of the examples listed above. Third, it requires RPAF’s to report timely to an audit committee of its organization, using critical accounting policies and practices. If any alternative treatments of financial information are used, it must follow Generally Accepted Accounting Principles (GAAP), along with any other significant information discussed or written. The fourth, and final provision is that it is unlawful for an RPAF to provide an auditing service to an issuer if the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or Controller was previously employed by the auditor and participated in the audit in the year after the date of the audit began.

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