04 Legal Duties and Responsibilities Flashcards
Define “breach of contract.”
Failure to perform substantially as agreed under contract
Define implied agreement.
To perform in a non-negligent manner, consistent with the standards of the profession.
List the elements of recovery.
Duty, Breach, Damages, Proximate Cause.
List the sources for which standards should be followed by a tax professional.
State and Federal statutes
Court decisions
Contract with client
Generally Accepted Accounting Principles (GAAP)
Generally Accepted Auditing Standards (GAAS)
Customs of the Profession
Define “standard”.
That degree of judgment and skill possessed by a reasonable accountant under all the circumstances.
Define “negligence”.
The performance of a contract in a careless manner. Negligence does not lead to punitive damages.
Define “constructive fraud.”
Reckless disregard or gross negligence.
Define “actual fraud.”
Fraud is an intentional tort that is made with scienter or a knowledge to deceive.
List the three primary approaches to accountant liability.
The Privity Approach of Ultramares v. Touche.
The Restatement “Limited Class” Approach.
The Reasonable Foreseeability Approach.
Describe the Privity Approach of Ultra mares v. Touche to accountant liability.
The Accountant is liable only to those with whom s/he is in privity of contract.
Describe the Reasonable Foreseeability Approach to accountant liability.
The Accountant is liable to whomever s/he can reasonably foresee may use the financial statements s/he certifies or prepares.
What occurs when the breach of a contract is minor?
In common law, if a breach is only minor, the non-breaching party is not discharged from the terms and conditions of the contract, but is entitled to damages.
List the two types of agreements.
Express or Implied.
What types of damages can a tax client recover?
Compensatory damages, but not punitive
What must be proven by a contracting party to establish the defense of fraud?
Misrepresentation or omission of fact
Materiality
Scienter
Reasonable reliance
Damages.
Describe the Restatement “Limited Class” approach to accountant liability.
The accountant has third-party liability to a limited class of known or intended users of financial statements whose specific identity need not be known by the CPA.
To what items do accountant–client privilege apply?
An accountant is prohibited from sharing work papers with anyone without the client’s permission (except in certain situations) and may not disclose information obtained during work performed in testimonials unless subpoenaed and relevant to a court case.
List some examples of when evidentiary privilege is not recognized.
State common law
Federal common law
Most states’ statutes
List the exceptions to a practitioner’s privilege as outlined in the Internal Revenue Code §7525.
Criminal matters;
U.S. matters not before IRS or federal courts;
State or local tax matters;
Written tax shelter advice.
List the six conditions under which disclosure of client information is acceptable.
- Client consents
- GAAP calls for disclosure
- Enforceable summons
- Ethical examination
- Peer review
- To others in firm on “need to know” basis
List the two actions that are punishable conditions under §7216 of the Internal Revenue Code.
- Disclosing any information obtained in preparation of a tax return.
- Using information for any purpose other than to prepare a return.
What does the acronym GAPP stand for?
Generally Accepted Privacy Principles.
What does the Bank Secrecy Act require of taxpayers?
This act requires taxpayers to report foreign bank accounts.
