An Accountant's Response To The Stock Market Crash Of 1929

An accountant commits fraud if he maintains false information about the sales in the company books, with an intention to knowingly increase the worth of a company’s profits.

An accountant who commits a fraudulent act can be either be civilly or criminally liable for both compensatory and punitive damages to any person who he should have reasonably foreseen as someone who could be injured. A fraudulent act is an act that has a false representation of a material fact, is made knowing that the fact is false, is made with the intention to deceive, and is relied on by the plaintiff. State law makes accountants criminally liable for certifying false documents, altering accounting records, using fake financial reports, giving false testimony,

There are many statutes, laws, and principles that apply to negligence and fraud in accounting cases. Two very important securities laws were passed in response to the stock market crash of 1929. The first is the Securities Act of 1933 Act and Section 11 says that an accountant may be held accountable for omissions or misstatements of material facts in a registration statement. It extends to claims by anyone who acquires a security covered by the statement. A purchaser only needs to prove that there was a material misstatement or omission and that he lost money for the accountant to be liable. Accountants can use the due diligence defense to avoid Section 11 liability if an accountant can show that he reasonably believed that the financial statements were accurate and complete at the time he made them. A violator of Section 11 is subject to fines of up to ten thousand dollars and/or imprisonment of five years or less. The 1934 Act of the Federal Securities Law also assesses liability for negligence and fraud. Section 18 says that an accountant who makes false or misleading statements in any document, report, or registration

Rule 10b–5 of this act states that an accountant is civilly liable if he acts with scienter, or intent, in making misstatements or omissions of material fact connecting to the purchase or sale of a financial asset. A violator of either Section 18 or Rule 10b–5 is subject to fines of up to five million dollars and/or imprisonment of up to twenty years. Another act, specifically for fraud, is RICO which extends criminal penalties for two or more racketeering acts that maintain, invest in, or operate businesses with criminal money or through criminal activity. As we learned in class, fraud is a racketeering act, so accountants must be aware of this statute. Blue Sky Laws are state laws that regulate the offer and sale of financial securities to protect people. The Sarbanes Oxley Act is an important act that was passed in response to the Enron Scandal. It established a new regulatory group, PCAOB, to oversee public company auditors. PCAOB is a five-member oversight group who protects investors in U.S. securities markets. They ensure that public companies’ financial statements are audited to the