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Chapter 47: Professional Liability and

Accountability
potential liability to clients
malpractice: The improper performance of professional obligations or when a professional fails to
exercise reasonable care and professional judgement thereby breaching the duty of care.
• A professional's common law liability can arise under either contract law or tort law. Contractual
liability between professional and client, no writing is required, but good idea for evidence and
interpretation.
Engagement letter: Objectives of the engagement, time frame, client responsibilities, how the fees will
be determined
• Suppose the parties had no discussion re fees, and at the end of the engagement, Professional billed
Client at its usual rate. How much, if anything, can Professional collect? The fair value of the services.
Pro-Bono: services offered for free out of the goodness of heart or required.
Implied terms:
• The client’s promise to pay is implied unless the professional agreed to perform the services pro bono.
• Conflicts of interest: Client’s interest will come before professional’s.
1. independence: if an auditor, then there also is an implied promise of not being linked to the client so
much that it ruins public interests.
• Duty of Confidentiality: a duty not to disclose or use confidential client information without the
client’s consent. Trade secrets, investing insights, non-public information.
• Due care (reasonable competence): the professional services will be performed with due care,
Requires the knowledge, skill, and judgment of a reasonable professional. There is no implied
promise that performance will be flawless, with no errors in judgment or execution.
• An auditor implies no guarantee that the audit will detect all errors or fraud, just those that would be
detected by a reasonably competent auditor.
The Brain Surgeon Defendant: Suppose a brain surgeon is sued for malpractice. If the patient died during
surgery, does that mean the brain surgeon is liable? How does the judge or jury know whether what the
brain surgeon did was appropriate?
• it depends if the doctor did something wrong, aka due care. They would likely bring in an expert
testimony to relay common practice during surgeries. Due care will be a matter of fact.

confidentiality
The Case of Auditor and the Subpoena: Judge wants Auditor to testify about Client and sends Auditor a
subpoena. Can Auditor claim a privilege not to testify?
• No, they don't have privilege under common or federal law, an enforceable subpoena is an exception to
confidentiality.
Privilege: court will not force you to disclose information because of a professional relationship
• Attorney/client privilege, spousal, priests in a church confession, or therapists (not doctors).
Kovel Rule: Accountants can take advantage of the attorney-client privilege while working for an
attorney who is providing legal services to a client.
a. Must be hired by the attorney, not the client, and
b. The work must relate to legal services (e.g., litigation support/legal questions)