Professional Responsibilities Flashcards
What is a CONSULTING ENGAGEMENT?
Helps Client to be more efficient with personnel and resources in order to accomplish their goals
What is covered by the Statements on Standards for Consulting Services (SSCS)?
o Competence o Due Professional Care o Planning o Supervision o Obtain Sufficient Data o Must Serve Client Interest o Must have an agreement (Written or Oral) o Must Communicate with Client o Objectivity is required o Independence is not required
What is the first step towards proving fraud?
Proving negligence is the first step
What must happen in order for an accountant to be liable for negligence?
- Accountant must have had duty to perform with due care exercised by an average accountant
- The client experienced actual damages
- The damages were a result of the negligence
Is it the accountant’s job to find fraud?
No, and they are not normally liable for not detecting it
What are the exceptions for an accountant to get sued for fraud?
Exceptions that can get an accountant sued:
o A normal audit following GAAS would have detected it
o Accountant agreed to take on more responsibility than what is required in a normal audit
o Accountant words audit report to indicate this greater responsibility
What must occur in order for Fraud to Exist?
o Accountant misrepresents material fact(s)
Immateriality is a defense an accountant can use in a fraud accusation
o Accountant commits Scienter
They know something is false or
They recklessly disregard truth
They intentionally conceal facts
o Client has actual damages
o Client reasonably relied on the misinformation
What is “privity” of contract (related to accountant’s liability – 3rd parties)?
Accountants in most situations don’t have privity of contract with third parties connected to the client, such as a bank. Meaning accountants don’t have a relationship and are not obligated to the 3rd parties.
What is the Ultra Mares?
The Ultra Mares decision says that 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
Lack of Privity is a defense against what?
o Contract breach suits
o Negligence suits
Lack of Privity is NOT a defense against what?
o Fraud
What is Common Law Fraud?
Basically regular Fraud o Misrepresentation of Material Fact o Scienter o Damages o Reasonable Reliance
What is Constructive Fraud?
Negligent fraud
o Instead of Scienter, there is Gross Negligence, which is a reckless disregard for the truth
o CPAs aren’t usually liable to third parties for mere negligence, but Gross Negligence (a.k.a.
Constructive Fraud) opens the CPA up to be liable to third parties
ACCOUNTANT-CLIENT PRIVILEGE?
ACCOUNTANT-CLIENT PRIVILEGE?
Unlike Attorney-Client privilege, there is no Federal Accountant-Client privilege for non-disclosure of private conversations to a court unless a particular state recognizes such a privilege
What are Accountant responsibilities for tax return preparations?
- Accountants have no way of auditing individual’s personal finances and are not required to do so when preparing a return
- Accountant must prepare the return in good faith and ask for more information if something is missing
- When recommending a tax position, the accountant should realistically believe that it would stand up under the scrutiny of a court
- If a past error is found, accountant should inform the client of this error
o Contacting the IRS is not required - If client won’t fix it, then the accountant should reconsider whether they want to do business with the client
- Payment according to refund amount is disallowed
- Contingent fees are OK when
o Fees are structured relative to judicial proceedings
(Example: IRS Audit)
