R4 M4 - Legal Duties and Responsibilities Flashcards
(4 cards)
Choice “D” is correct. An accountant is prohibited from showing the workpapers to anyone without the client’s permission, except:
Lawful subpoena.
Prospective purchasers, as long as the prospective purchasers do not disclose the confidential information.
Quality control panel.
AICPA/State Trial Board.
Court proceedings.
When GAAP requires disclosure of such information in the financial statements.
Spinner, CPA, had audited Lasco Corp.’s financial statements for the past several years. Prior to the current-year’s engagement, a disagreement arose that caused Lasco to change auditing firms. Lasco has demanded that Spinner provide Lasco with Spinner’s working papers so that Lasco may show them to prospective auditors to help them prepare their bids for Lasco’s audit engagement. Spinner refused and Lasco commenced litigation. Under the ethical standards of the profession, will Spinner be successful in refusing to turn over the working papers?
A. Yes, because Spinner is the owner of the working papers. B. Yes, because Lasco is required to direct prospective auditors to contact Spinner to make arrangements to view the working papers in Spinner's office. C. No, because Lasco has a legitimate business reason for demanding that Spinner surrender the working papers. D. No, because it was Lasco's financial statements that were audited.
Choice “A” is correct. Work papers belong to the accountant who prepares them, not the client. Thus, as the owner of the workpapers, Spinner does not have to disclose them to the client, Lasco.
Choice “B” is incorrect because it indicates Spinner would have to disclose if Lasko directed the new auditors to contact Spinner to view the workpapers in Spinner’s office. Spinner does not have to disclose the workpapers.
Choices “C” and “D” are incorrect. Both indicate that Spinner must disclose to Lasco and Spinner is not required to disclose the workpapers.
A CPA in public practice may not disclose confidential client information regarding auditing services without the client’s consent in response to which of the following situations?
A. A review of the CPA's professional practice by a state CPA society. B. A letter to the client from the IRS. C. An inquiry from the professional ethics division of the AICPA. D. A court-ordered subpoena or summons.
Choice “B” is correct. A CPA is required to disclosed confidential client information if the information is subpoenaed and relevant to a court case. The IRS would have to do more than request the information in a letter. The IRS would have to subpoena the information and show that the information was relevant to an examination (audit).
Choice “A” is incorrect because a CPA is required to reveal confidential client information to a state CPA society voluntary quality control review panel when requested.
Choice “C” is incorrect because a CPA is required to reveal confidential information in an official investigation of the AICPA/state trial board.
Choice “D” is incorrect because a CPA is required to reveal confidential client information if it is subpoenaed and relevant to a court case.
Which of the following is an evidentiary privilege that protects communication between a CPA and the CPA’s taxpayer-client in a noncriminal tax matter before the IRS?
A. Attorney-client privilege B. Accountant-client privilege C. Tax practitioner privilege D. Work product privilege
Choice “C” is correct. The tax practitioner privilege in the Internal Revenue Code provides that the same common law protections of confidentiality that apply to a communication between a taxpayer and an attorney shall also apply to a communication between a taxpayer and any federally authorized tax practitioner. A federally authorized tax practitioner is anyone authorized to practice before the IRS, including CPAs and enrolled agents. The privilege can only be asserted in a noncriminal tax matter before the IRS or a noncriminal tax proceeding in federal court brought by or against the United States.
Choice “A” is incorrect. The attorney-client privilege is a privilege that protects the confidentiality of communications between an attorney and the attorney’s client, not a CPA and client.
Choice “B” is incorrect. There is no common law accountant-client privilege like there is for attorney-client, although some states provide a statutory accountant-client privilege.
Choice “D” is incorrect. The work product privilege protects tangible materials produced by a CPA in preparation for litigation as requested by an attorney but not communications between the attorney and the accountant about the product.
