Legal Duties And Resposibilities Flashcards
The accountant client privilege is recognized
Approximately 15 state legislators
Congress for vey limited purposes
The state privilege of accountant-client testimonial privilege only applies to state courts not
Federal courts
A CPA firm may disclose client name unless disclosure would express
Experiencing financial difficulties
Do not disclose client name in
Bankruptcy
When a claim is not criminally liable for securities fraud
A claim for RICO cannot b pursued
Under 1962 defendants are liable for RICO when it conduct or participate in
Managing the firm
The FCPA accounting provisions apply under
sEC registered companies
When a person has to pay extra to get someone else to do a job performed by another person they may be compensated for the
Extra costs
Liability disclaimers are not upheld in
Court
The three viewpoints regarding an accountants liability are
Privity of contract
Reasonably forseeable users
Limited class of actually forseen users
The best defense for fraud is to prove
Lack of Scienter
Constructive fraud involves
Gross negligence
In a negligence case the plaintiff must prove your cpa violated the
GAAS in performing the audit
Two ways to establish intent are
Knew about the misrepresentation
Acted recklessly
Punitive damages related to intentional or
Reckless
A CPA is negligent if he/she fails to correct errors in previously issued
Audit reports
Ultramares requires Privity before an accountant is label for
Negligence
Sox did not require the rotation of audit firms every seven years just the
Rotation of audit engagement partner and reviewing partner
When a RICO claim is predicated of securities fraud no Rico civil suit can be brought until defendant has been
Criminally convicted
Mail and wire fraud are RICO
Predicate acts
A…FCPA accounting provisions only apply to SEC registered
Corporations
An accountant who negligently prepares a clients financial report will b liable to
Third parties where the CPA had prior knowledge of the existence of a limited class of potential users
When an accountant knows the financial statements will be used by someone and it contains an error. The plaintiff must prove
Negligence and reliance
Privity is not required in a
Fraud case
Consequences of breach of contract by accountant the account is entitled to
Fees if minor no fees if major
If breach of contract by accountant the client is entitled to
Compensatory damages but not punitive damages
Disclaimers in contract does not void accountant from
Liability
In a negligence case the following elements must be proven
Duty
Breach
Damages
Proximate cause
Contributory negligence results is used in all jurisdictions where the
clients carelessness interferes with the accountants performance
Clients carelessness that helps create the situation the auditor failed to detect is accepted by
Most jurisdictions
Elements of fraud
False representation of fact
The misrepresented (or omitted) fact was material
The accountant knew or recklessly disregarded the falsity
The accountant intended to and induce plaintiff reasonable reliance on the misstatement or omission.
The client suffered damages
Fraud is
An intentional tort
Runs to all foreseeable victims of the fraud
May be liable for punitive and compensatory damages
Restatement view is the
Majority view
Ultramares accountant is only liable to those who there is
Privity of contract
Accounting provisions apply to all companies registered with
The SEC
Internal accounting records must provide reasonable assurance that
Transactions are executed in accordance with the mgt general or specific authorization
Transactions recorded as necessary to permit preparation of proper financial info
Maintain accountability for assets
Access to assets is authorized
Recorded assets are compared with existing assets at reasonable intervals
Criminal penalties of bribery are
Individual maximum of $100,000 or 5 years jail
Corp max $1M
No criminal prosecutions for inadvertent or insignificant errors
Civil maximum civil fine of $10,000
Criminal Rico charges can be brought by the
DOJ dept of justice
Civil charges can be bought by
Individuals who sue for treble damages and attorney fees
Rico prohibits
Receiving money or property through a pattern of racketeering and investing into an enterprise
Acquiring and controlling an enterprise through racketeering
Conducting or participating in enterprise affairs
Conspiring to violate the 3 points above
The elements of racketeering under 1962(c) are
Defendant conducted or participated in the conduct
Of an enterprise
Through a pattern
Of racketeering
Racketeering activity is
Mail fraud
Wire fraud
And other predicate acts
When probing Rico for securities the plaintiff must prove the defendant had
already been convicted of securities fraud
Punishments under SOX for destruction of records are
10 yrs jail and fine for failure to retain records
Fine or imprisoned for up to 20 years for destruction of records and corrupt tampering with docs to b used in an official proceeding
Types of testimonial privileges
Attorney client, doctor patient, priest penitent.
Work product privileged
Prevents one party from learning the other side strategies for litigation
15 states allow an accountant client privilege
The privilege belongs to the client
Can be waived by client
Waiver of part is waiver to all
Only applies to state court
The lawyers umbrella can
Can shelter communications with an accountant when used for preparing litigation.
Tax practitioners privilege
Exceptions criminal matters
Matters to IRS
Tax advice on state or local matters
Written advice on promotion of tax shelter
The tax privilege does not protect
Information for facilitating tax return preparation
General accounting advice
Section 6713 imposes a civil penalty for
Each unauthorized disclosure
Section 7216 imposes a criminal fine
And potential imprisonment who knowingly disclose info and use info for other purposes other than to prepare a return
