Professional Responsibilities Flashcards
What is the purpose of a Consulting Engagement?
This engagement helps the client be more efficient with personnel and resources in order to accomplish their goals.
What is required by the Statements on Standards for Consulting Services (SSCS)?
Competence; Due Professional Care; Planning; Supervision; Obtain Sufficient Data; Serve Client Interest; Agreement: Written or Oral; Communicate w/ Client; Objectivity NOT REQUIRED: Independence
What is the difference between Express versus Implied duties of an accountant under contract?
Express: Contract specifies what accountant will do Implied: Accountant performs without negligence
Accountant’s liability for negligence - What are the requirements?
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.
What is an Accountant’s Liability for Detecting Fraud (Under Normal Circumstances)?
It is not the accountant’s job to find fraud and they are not normally liable for not detecting it
When can a client be sued for failing to detect fraud?
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.
When has an accountant committed fraud?
Misrepresentation - Accountant misrepresents MATERIAL fact(s) Scienter - Accountant commits scienter Damages - Client has actual damages. Reasonable Reliance - Client reasonably relied on the misinformation.
What is Scienter?
To report something knowing it is false. Characterized by reckless disregard for truth Intentionally conceal facts
What is the Accountant’s Liability to Third Parties - Privity Defense?
Lack of privity defends against contract breach and negligence. NOT a defense against fraud.
The definition of Ultramares Decision:
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.
What is Common Law Fraud?
Regular fraud Misrepresentation of Material Fact Scienter Damages Reasonable Reliance
What is Constructive Fraud?
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.
What are the required actions with Discovery of Illegal Activity?
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.
What is the Accountant-Client Privilege?
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.
Accountant’s Workpapers - Confidentiality Requirements
- 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.
