Open AccessControlling The Moral Hazard Created By Limiting Liability
Author(s) -
Richard A. DeFusco,
Paul Shoemaker,
Nancy J. Stara
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v12i3.5794
Subject(s) - liability , moral hazard , business , limiting , limited liability , actuarial science , strict liability , law and economics , accounting , economics , finance , incentive , engineering , microeconomics , mechanical engineering
Accounting firms may choose to organize either as Limited Liability Companies (LLC) or as Limited Liability Partnerships (LLP) to eliminate joint and several liability for their partners. However, before firms consider adopting either new entity form to limit tortuous liability, the moral hazard problem associated with these entity choices should be evaluated. This article examines the issue of accountant liability and offers suggestions to reduce moral hazard while still protecting the accountant from personal liability.