The following cases should succor ...

The following cases should succor as cautionary tales for those seeking to foster themselves from liability claims.

Duty of care

To establish a cause of action in negligence, a plaintiff must convince the court the defendant owes them a what one ought to do of care, the defendant's act or omission breached that service by falling below the applicable standard of care, and damage issueed from the breach.

Haig v Bamford [1977] 1 SCR 466

An auditor knew their statements were to be used in a specific transaction according to a specific class of investors. The court held the auditor owed a business of care to the investors, level though the auditor did not know their individual identities.

This decision left exhibit the question of how greatly further the courts were willing to reach out the duty of care. The answer came 20 years later when the highest Court of Canada limited the extent of the duty of care in Hercules Management.

Hercules Management Ltd v Ernst & Young [1997] 2 SCR 165

In Hercules Management, it was determined that office of care will only exist in cases where "indeterminate liability" does not arise. The two-step approach involves determining whether the accountant had specific knowledge of the particular plaintiff or a narrow class of plaintiffs, and whether the statements were used for the specific purport of the transaction for which they were prepared.

Following this case, the courts will find a service of care exists when the accountant's work is enjoin to a use that is within his or her contemplation, on the same level if it is not specifically agreed to in writing.

Dentech yields Inc v. Dented Manufacturing Ltd [2001] BCJ No. 207 (SC)

An auditor prepared financial statements in the course of a business sale, later claiming to having done with equal reason because a US bank required them and not for the intent of the sale. But the auditor knew about the sale to the plaintiffs. The Court held the auditor knew the plaintiffs would use the statements in the sale and therefore owed them a toll of care.

Fiduciary what one ought to do

In addition to a what one ought to do of care in negligence, it's sometimes alleged that an accountant owes a fiduciary service to his or her client. A fiduciary is someone in a position of trust who is relied immediately after by a vulnerable person. In similar cases, courts will hold the accountant to a higher standard of care.

Madhani v Pirani [1997] BCJ No. 2280 (BCSC)

An accountant advised the plaintiff to invest in a house of entertainment project involving companies he haveed without advising them of his personal interest in the frame alerting them to the project's financial difficulties, or advising them to look after an independent legal opinion. The plaintiff advanced currency and was issued a promissory note signed by dint of the accountant and an associate. The scheme went bankrupt.

The court held that the financial investment relationship between the plaintiff and the accountant gave rise to a fiduciary toll The court determined that the accountant had breached this tax and had breached an implied contract, by the agency of failing to disclose both his financial interest in the throw out and the project's financial question at issues The duty to disclose was dictated according to the closeness of the relationship between the parties.

Stegor Consultants v Sproat [2001] OJ No. 376 (Ont C.A.); Application for leave dismissed [2001] S.C.C.A. No. 222 (SCC)

The plaintiffs purchased the company shares of common of the defendants. A share purchaser had ask advice ofed an accountant and relied onward his advice regarding the mode of building of the transaction.

One of the financial statements indicated the company was profitable; however, other statements clearly showed the company was not.

The plaintiffs later su the company, as well as the accountant and his employer for "misstating" the company's financial statements, which they alleged they had relied forward in their decision to purchase shares. moreover there was evidence the plaintiffs had possession of the financial statements that showed the company was unprofitable.

Although the trial referee found a fiduciary relationship existed between the parties and awarded the plaintiffs $692000 the Ontario Court of Appeal ed the decision, clearing the accountant and his employer of liability for the misrepresentations in the financial statements. The Court of Appeal build that the plaintiffs had deliberate togethered the accountant for the limited intention of the structure of the share purchase and that this had been done after they had already decided to proce with the transaction.

These decisions illustrate to what extent important it is to clearly record what advice the accountant is giving, to whom, and for what view Doing so prevents a client from later blaming each aspect of a decision forward the accountant, whether or not the accountant was involved in the client's decision or question at issue

Standard of care

Once a what one is bound [i]or[/i] under obligation to do of care exists in a negligence case, the court will determine what standard of care to impose based forward the circumstances.

It's important to note that compliance with generally accepted accounting principles and standards (GAAP and GAAS)-- while obviously advised-does not guarantee accountants will be viewed favourable in the sights of the law.