Business Law, Chapter 47: "Professional Liability and Accountability" Flash Cards and Questions

Generally Accepted Accounting Principles

(47-1b) The conventions, rules, and procedures developed by the Financial Accounting Standards Board to define accepted accounting practices at a particular time (also referred to as GAAP).

Generally Accepted Auditing Standards

(47-1b) Standards established by the American Institute of Certified Public Accountants to define the professional qualities and judgment that should be exercised by an auditor in performing an audit.

Defalcation

(47-1b) Embezzlement or misappropriation of funds.

Constructive Fraud

(47-1c) Conduct that is treated as fraud under the law even when there is no proof or intent to defraud, usually because of the existence of the special relationship or fiduciary duty.

Ultramares Rule

(47-2c) A regulation which states that liability will only be imposed if the accountant is in privity, or near privity, with the third party.

Restatement Rule

(47-2c) A regulation which states that liability will be imposed if the third party’s reliance is foreseen or known, of if the third party is among a class of foreseen or known users.

Reasonably Foreseeable Users Rule

(47-2c) A regulation which states that liability will be imposed if the third party’s use was reasonably foreseeable.

Working Paper

(47-3b) A document used and developed by an accountant during an audit, such as notes, computations, and memoranda.

Due Diligence

(47-4a) A required standard of care that certain professionals, such as accountants, must meet to avoid liability for securities violations.