Accounting Firm To A Third Party Civil Liability Study

The civil liability of the accounting firm to the third party is a hot and difficult problem in many counties since the litigation explosion in 1980s. In China, the Deyang accounting firm Deyang capital verification case set up accounting firms to a third party liability precedent which is judged according to the Supreme People's Court Act [1996] 56 letter. In recent years, with China's CPA industry's rapid development, and the accounting firm issued false audit reports litigation arising from the growing, the public increasingly aware of the accounting profession's important socio-economic functions. At the same time, the state also standardized the practice of Certified Public Accountants officially included in rectifying and standardizing the market economic order one of the focal points. In order to define the civil liability of accounting firms correctly and fairly to protect the healthy development of market economy and to protect the public interests and the legitimate rights and interests of investors, after more than six years' research and feasibility studies, the Supreme People's Court issued by adress on the 12th [2007] "on the trial of accounting firm audit activities in the civil tort cases in a number of provisions" on the June 11, 2007 which is used to guide the people's courts at all levels in such cases. With reviewing oversea legislation practice and contacting the reality of our country, around the main provisions of Release Act on the 12th [2007], this article discuss on this issue of the civil liability of the accounting firm to the third party in both the accounting and the law ways.The whole paper is divided into four parts, the main points of which are as the followings:Part one mainly introduces the basic concepts and analysises the nature to the the third party's civil liability of accounting firm. On the liability of the nature, the civil law countries and the common law countries have different ideas. In German, this liability is defined as liability arising out of contract.The courts extends the obligation of contract to protect the third party who suffered loss. But in common law legal system, they adopt the consideration theory, so they maintain that the accounting firm and the third party don't enter into a contract and settle such disputes with the tort law. In view of the relative nature of the contract and China's judicial practice, this paper suggests that tort liability.Part two introduces the liability principle and elements of composition of the accounting firm's civil liability to the third party. On the issue of the liability principle,there're three ideas theoretically, including absolute or strict liability, fault liability and fair liability. The author holds that the best choiceshall be the special form of fault liability-presumed fault. Becausecompared with the professional accounting firms, the third parties are always in the weak position in the aspect of information possession, from the third person in the burden of proof issued by the accounting firm of professional services in the report on the fault of the subjective in practice is unlikely to be realized. The constitution of the accounting firm's infringement liability must involve four elements as follows: the torts, harmful consequences, causulities and subjective faults. The torts is the behavior that the accounting firm provides mendacious audit statement. The harmful consequences is the pure economic interests loss the user of the false report issued by accouting firm suffered. On the causulities identification, in consideration of the third party difficulties offering proof about causalities, the author holds that presumed causalities would be adopted. Subjective faults means the psychological attitude when he is doing the behavior, and it includs intention and negligence.Part three discusses the compensation and the defense causes of the accounting firm's civil liability to the third party. In the first segment of this part, the author introduced the assignment of responsibility for damages rules, the principal of responsibilitiy allocation between associated parties and the scope of the compensation. The accounting firm can also raise defence causes against the plaintiff's request to waive or reduce responsibility. Defense causes can be proposed based on fault or causulities, but the scope of application of the agreement in the audit report can not be used as the defense cause. If the third party has already known the report issued by the accounting firm was untrue and still used the report, the people's court shall reduce the accounting firm's liability appropriately. In the last part, after making an investigation of current related laws in our country, the auther give some legislative proposals to make the accounting firm's civil liability perfect. In China, the laws involved include: "Registered Accountants Act," the "Company Law," "Securities Act", meanwhile, the Supreme People's Court has issued 6 the relevant judicial interpretations since 1996 to guide the people's courts at all levels in such cases. So far, China's CPA system of civil liability trial rules has been formed basically, but there are still some inadequacies. So the author puts forward the following two perfect proposals: 1. establish audit fault identification system; 2.improve the accounting firm civil compensation protection system.