Professional Responsibilities Flashcards

1
Q

Business LAW - REG

What is the purpose of a Consulting Engagement?

A

This engagement helps the client be more efficient with personnel and resources in order to accomplish their goals.

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2
Q

Business LAW - REG

What is required by the Statements on Standards for Consulting Services (SSCS)?

A

Competence; Due Professional Care; Planning; Supervision; Obtain Sufficient Data; Serve Client Interest; Agreement: Written or Oral; Communicate w/ Client; Objectivity

NOT REQUIRED: Independence

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3
Q

Business LAW - REG

What is the difference between Express versus Implied duties of an accountant under contract?

A

Express: Contract specifies what accountant will do

Implied: Accountant performs without negligence

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4
Q

Business LAW - REG

Accountant’s liability for negligence - What are the requirements?

A

DUTY - DAMAGES - RESULT

Duty - Accountant must have had duty to perform with due care exercised by an average accountant.

Damages - The client experienced actual damages.

Result/Causation - The damages were as a result of the negligence.

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5
Q

Business LAW - REG

What is an Accountant’s Liability for Detecting Fraud
(Under Normal Circumstances)?

A

It is not the accountant’s job to find fraud and they are not normally liable for not detecting it

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6
Q

Business LAW - REG

When can a client be sued for failing to detect fraud?

A

When a normal audit following GAAS would have detected the fraud.

When an accountant agrees to take on more responsibility than what is required under a normal audit.

When accountant words the audit report to indicate this greater responsibility.

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7
Q

Business LAW - REG

When has an accountant committed fraud?

A

Misrepresentation - Accountant misrepresents MATERIAL fact(s)

Scienter - Accountant commits scienter

Damages - Client has actual damages.

Reasonable Reliance - Client reasonably relied on the misinformation.

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8
Q

Business LAW - REG

What is Scienter?

A

To report something knowing it is false.

Characterized by reckless disregard for truth

Intentionally conceal facts

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9
Q

Business LAW - REG

What is the Accountant’s Liability to Third Parties - Privity Defense?

A

Lack of privity defends against contract breach and negligence.

NOT a defense against fraud.

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10
Q

Business LAW - REG

The definition of Ultramares Decision:

A

Accountants are not liable to third parties unless the third party was an
intended beneficiary of the engagement AND the accountant knew they
would be relying on the financial statements.

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11
Q

Business LAW - REG

What is Common Law Fraud?

A

Regular fraud

Misrepresentation of Material Fact
Scienter
Damages
Reasonable Reliance

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12
Q

Business LAW - REG

What is Constructive Fraud?

A

Gross Negligence - reckless disregard for truth

CPAs usually not liable for simple negligence; but Gross Negligence (aka Constructive Fraud) opens the CPA up to be liable to third parties.

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13
Q

Business LAW - REG

What are the required actions with Discovery of Illegal Activity?

A

Accountant must report discovered illegal activity to Audit Committee or Board of Directors

If material in public company; BOD has 1 DAY to notify SEC.

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14
Q

Business LAW - REG

What is the Accountant-Client Privilege?

A

NO Federal Accountant-Client privilege for non-disclosure of private
conversations to a court unless a particular state recognizes such a privilege.

If your client tells you Yeah; I cheated on my taxes; a court could force an accountant to testify about that conversation.

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15
Q

Business LAW - REG

Accountant’s Workpapers - Confidentiality Requirements

A
  1. Can be subpoenaed
  2. Can be looked at by another CPA doing peer review
  3. Property of the accountant who created them

Note: Source documents supplied by client must be returned to client if they request them back; even if there is a billing dispute.

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16
Q

Business LAW - REG

True or False: Accountants are responsible for knowing the personal finances of tax preparation clients.

A

Accountants have no way of auditing individual’s personal finances and are not required to do so when preparing a return

17
Q

Business LAW - REG

When a past error is found in a client’s tax return; what should an accountant do?

A

If a past error is found; accountant should inform client of this error.

Contacting the IRS is NOT required.

If client won’t fix it; then the accountant should reconsider whether they want to do business with the client

18
Q

Business LAW - REG

Name the key responsibilities of an accountant when preparing a tax return.

A

Accountant must prepare the return in good faith and ask for more information if something is missing

When recommending a tax position; the accountant should realistically believe that it would stand up under the scrutiny of a court