Research On CPA’s Civil Liability For Misrepresentation In Securities Market

Our securities market is flooded with misrepresentation due to the malfunction ofthe information disclosure system. Certified Public Accountant (“CPA”) is a quiteimportant gate-keeper of the information disclosure system. However, a series ofmisstatement cases by CPA in the securities market have been revealed, which has drawnthe attention of the scholars and the interested parties. The legal liability of CPA formisrepresentation includes criminal liability, administrative liability and civil liability.This article discusses the civil liability of CPA concerning misstatement.The first part is an overview of CPA’s civil liability for misrepresentation. Beginningwith the definition and the forms of misrepresentation-untruth statement, misleadingstatement and omissive in the securities market, which is followed by the discussion ofthe nature of CPA’s civil liability, the article holds the view that it is tort liability. Thispart lays the foundation for the other parts of this article.The second part is the core of this article and it is about the elements of CPA’s civilliability. There are four elements: misrepresentation, negligence or malice, damage,causation. The key to the element of misrepresentation is whether CPA’s non-complianceto the auditing standards should be the foundation of the first element, which has longbeen considered as a conflict between the legal society and the accounting society. Afterdeliberation, this article believes that this conflict is not substantial. The element ofdamage concerns the recognition of pure economic loss by law which is mainly a matterof policies. The rule of presumed negligence shall be applied and malice and negligenceshould be measured in subjective way and objective way respectively. As for the elementof causation, the equivalent causality theory shall be applied and reliance element is theprecondition of causation. In order to protect the common investors in the securitiesmarket, reliance must be presumed.The third part mainly touches the defenses against CPA’s civil liability whichincludes compliance to the auditing standards, the third party’s negligence, plaintiff’s negligence.The last part of this article mainly discusses several controversial issues. The partyliable for the malpractice of CPA shall be the CPA firm, in special circumstance theengagement partner and the firm are jointly liable. There’re three theories about theboundary of the third party: privity of contract, known third party, foreseeable third party.The issue of calculating the amount of damages concerns about types of damages,beginning and ending time and the equation.