Professional Responsibilities Flashcards
Professional Responsibilities
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.
Professional Responsibilities
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
Professional Responsibilities
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
Professional Responsibilities
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.
Professional Responsibilities
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
Professional Responsibilities
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.
Professional Responsibilities
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.
Professional Responsibilities
What is Scienter?
To report something knowing it is false.
Characterized by reckless disregard for truth
Intentionally conceal facts
Professional Responsibilities
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.
Professional Responsibilities
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.
Professional Responsibilities
What is Common Law Fraud?
Regular fraud
Misrepresentation of Material Fact
Scienter
Damages
Reasonable Reliance
Professional Responsibilities
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.
Professional Responsibilities
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.
Professional Responsibilities
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.
Professional Responsibilities
Accountant’s Workpapers - Confidentiality Requirements
- Can be subpoenaed
- Can be looked at by another CPA doing peer review
- 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.
