Practice, ethics, and professional duties
The Accountant Liability Test
Two questions decide it: how far the negligence standard reaches, and which securities act sets the plaintiff's burden.
How the exam words it
- -A third party relies on negligent statements and it asks whether privity, the foreseen-user rule, or foreseeability lets it recover.
- -Statements appear in a registration statement and it asks what a section 11 plaintiff must prove.
- -Secondary-market trading is involved and it asks about Rule 10b-5 and scienter.
- -It asks who owns the working papers, or whether the section 7525 privilege reaches a criminal or tax-shelter matter.
The playbook
- 1For ordinary negligence, place the plaintiff on the ladder: Ultramares (privity or near-privity only), the Restatement (a known, foreseen class, the majority view), or reasonable foreseeability (any foreseeable user, the minority view).
- 2For fraud or gross negligence, every state reaches all reasonably foreseeable users.
- 3Under section 11 of the 1933 Act the plaintiff proves only a material misstatement and damages, and the accountant must prove the due-diligence defense; under Rule 10b-5 of the 1934 Act the plaintiff must also prove reliance and scienter.
- 4Working papers belong to the accountant subject to client confidentiality, and the section 7525 privilege covers only non-criminal federal tax advice, not criminal cases, tax-shelter promotion, or state matters.
The trap
Letting an unknown third party recover for ordinary negligence in a privity state, or requiring a section 11 plaintiff to prove reliance and negligence. Privity blocks the negligence claim; section 11 shifts the burden to the accountant.
How the exam varies it
The same pattern, re-skinned along these axes:
Which negligence standard: privity, foreseen user, or foreseeabilityNegligence versus fraud or gross negligence1933 Act section 11 versus 1934 Act Rule 10b-5, and privilege versus working-paper ownership
Drill this pattern
8 questions of The Accountant Liability Test from across the AUD topics. Clear it by getting 5 right with a streak of 3.