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Flashcards in BLaw - Professional Responsibilities Deck (18):

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

Professional Responsibilities - Reg


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

NOT REQUIRED: Independence

Professional Responsibilities - Reg


Express: Contract specifies what accountant will do

Implied: Accountant performs without negligence

Professional Responsibilities - Reg



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.

Professional Responsibilities - Reg


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

Professional Responsibilities - Reg


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.

Professional Responsibilities - Reg


Misrepresentation - Accountant misrepresents MATERIAL fact(s)

Scienter - Accountant commits scienter

Damages - Client has actual damages.

Reasonable Reliance - Client reasonably relied on the misinformation.

Professional Responsibilities - Reg


To report something knowing it is false.

Characterized by reckless disregard for truth

Intentionally conceal facts

Professional Responsibilities - Reg


Lack of privity defends against contract breach and negligence.

NOT a defense against fraud.

Professional Responsibilities - Reg


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.

Professional Responsibilities - Reg


Regular fraud

Misrepresentation of Material Fact
Reasonable Reliance

Professional Responsibilities - Reg


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.

Professional Responsibilities - Reg


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.

Professional Responsibilities - Reg


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.

Professional Responsibilities - Reg


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.

Professional Responsibilities - Reg


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

Professional Responsibilities - Reg


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

Professional Responsibilities - Reg


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

Professional Responsibilities - Reg