Study On CPA's Civil Liability To Third Party For False Representation In Security Market

This article has discussed Certified Public Accountant's civil liability to third party. The civil liability is caused by false representation by CPA in security market. Four key words in this article are: Certified Public Accountant, False Representation ,Third Party, and Civil Liability.Chapter One is a briefing on the false representation by Certified Public Accountant in security market. Information disclosure is the key part in the open principle in security market. However, due to various kinds of factors, Certified Public Accountant may provide false representation during the process of disclosing accounting information. The untruthful, misleading and missing information which has made up of false representation should reach the standard of materiality. The author thinks that, regarding the criteria of materiality, the criteria of investor decision-making shall be adopted with priority in China. The legal circle and the accounting circle have long been holding different opinions for criteria regarding determination of Truthfulness. In the legal circle, the required truthfulness is more or less focused on Entity Truthfulness and Procedure Truthfulness, while in the accounting circle, the truthfulness in auditing is a kind of Process Truthfulness. In judicatory practice, we should follow the principle of Legal Truthfulness, instead of directly employing objective truthfulness criteria.In Chapter Two the author has discussed liability entity and third party, and has introduced the evolving process of third party scope in Common Law, focusing on the definition of third party scope in Statute Law. In this chapter, suggestion for improving legislation in China is also raised. Detailed analysis is given to the issue of Liability Entity, and two different concepts are identified: Conduct Entity and Liability Entity. It's suggested that civil liability shall be jointly responsible by three parties: CPA firm, partner (or director accountant) and signed certified accountant.In Chapter Three the author has discussed the nature and principles of imputation of third party civil liability related to false representation by CPA. Presently, there are three different opinions about the nature of liability: Contractual Theory, Tort Theory and Occupational Liability Theory. It's recommended that Tort Theory shall be adopted in China. For Principles of Imputation, traditionally, Principle of Fault Liability is adopted, but Principle of No-fault Liability is recommended recently. The author thinks that the Principle of Fault Liability shall be followed. In the end of this chapter, the author expresses his opinion regarding the application of Offence Deducting Principle.In Chapter Four the author has analyzed Constitutive Elements of third party civil liability resulted from false representation by CPA. Three Constitutive Elements have been introduced: fault ,damage and cause-effect relationship. Fault is related to the selection of fault criteria. Compared with the criteria of Intensive Attention Obligations, reasonable Attention Obligations and caution criteria shall be more adaptive to the reality. The occupational fault of CPA can be roughly categorized as: Investigation Fault, Judgment Fault and Expression Fault. Independent auditing criteria is recommended as judgment criteria for fault of CPA in China. For the cause-effect relationship between tort of false representation and the consequence, reliance and presumption of reliance principle is discussed. The analysis method for cause-effect relationship has been suggested that, factual cause-effect relationship and legal cause-effect relationship shall be distinguished in theory, while transaction cause-effect relationship and loss cause-effect relationship shall be distinguished in judicatory practice. Finally the author recommends that the determination principle combining presumption of reliance and factual presumption shall be adopted in China.In Chapter Five the author has raised some suggestions regarding third party civil liability system for CPA in China. Firstly, reform shall be implemented on the organization form of current accountant firms in China, and partnership with limited liability shall be adopted. Secondly, Insurance system for occupational liability of CPA in China shall be perfected. Finally, Sar-banes-Oxley Act shall be referred to, and supervision on the accounting business shall be strengthened.