Ordinary Negligence Essay

Ordinary negligence is when a prudent person fails to act reasonable when expected in a certain circumstance.Basically, failing to comply their obligation when expected too. In the same situation, for auditors it is a term used as what other competent auditors would have done. Gross negligence is disregarding the need to care which may cause harm to persons. In other words, not caring at all. As opposed to ordinary negligence, gross negligence tends to try and deceive and be reckless. Gross negligence, also known as constructive fraud, is the existence of unusual negligence even when one is not trying to cause any harm. Gross negligence can also be defined as recklessness. Fraud is termed as when a false statement is made and it is known to be incorrect intent to deceive. Rule 10b-5 of the securities and exchange Act of 1934 forcefully states the antifraud provisions, as discussed in the paragraphs. Any activities that are fraudulent are prohibited without exception that involve purchases or security sales. Due to this rule, if any information is used fraudulently or is misrepresented for third party use, auditors/accountants will be held liable. In order for auditors or accountants to be held liable or found guilty they must be an intent to deceive. This was ruled by the Supreme Court thanks to the 1976 Hochfelder v. Ernst & Ernst court case. This followed to not only would an auditor be at fault if they physically interacted to but even if they knew about it and didn’t reveal it on their report made them just as guilty. Therefore, if an auditor failed to conduct a reasonable audit and may had the knowledge of fraud being present could also fall under the state of being guilty.