Introduction to Accountant Responsibility
Essentially, accountants have a responsibility a number of parties, with the major parties in this case being the government, clients and third parties. In today's capitalist society, the accounting profession is deemed to be a common and important feature. Discussing the responsibilities accountants have to the three parties identified above would, therefore, certainly be a prudent and logical move.
Responsibility to Clients
To begin with, accountants have a responsibility to keep client information confidential. If an accountant discloses confidential client information to a third party, such an accountant would be deemed to have violated Rule 301. The said rule, in simple terms, states that "a member CPA shall not disclose any confidential information without the specific consent of the client" (Perkins, 2004). In that regard, therefore, an accountant must obtain the consent of the client before disclosing information which could be regarded confidential. The said consent could be in writing. It should, however, be noted that an accountant cannot be deemed to have violated Rule 301 if the information disclosed already happens to be in the public domain. Similarly, an accountant cannot be held liable for the violation of client confidentiality if disclosures of client information are made pursuant to proceedings of a legal nature. Yet another critical responsibility of accountants to their clients has got to do with exercise of due professional care. This essentially means that should an accountant neglect professional standards in the execution of his or her duties, i.e. By failing to detect fraud that ought to have been easily detected, the affected client can claim negligence.
Responsibility to Third Parties
In basic terms, third parties include all those outside parties an accountant is familiar with and who are seen as the key beneficiaries of the work being undertaken, or who might rely on such work. To begin with, accountants owe some responsibility to third parties when it comes to the rendering of unbiased opinion. In that regard, they could be liable for fraud or even negligence - gross or otherwise. An accountant in the words of Newton (2009) is "relied on to reveal all those facts that might be relevant and important to other persons." For instance, in the preparation or review of financial statements, in those instances whereby the accountant reasonably expects a third party will rely on the financial data presented therein, the said accountant has a responsibility to exercise reasonable care and make all the reasonable disclosures. The third party in this case could be shareholders who are seen as "standing in the shoes of the party contracting for them…" (Bruner and Haley, 2007, p. 237).
Responsibility to the Government
The responsibility of accountants also extends to the government. In that regard therefore, an accountant could find himself incurring criminal liability for the violation (willful) of several Acts and regulations as may be spelled out from time to time. For instance, criminal liability could be incurred by an accountant for the willful preparation of tax returns that happen to be falsified. As Perkins (2004) points out, a CPA or accounting/auditing firm is also expected to comply "with applicable laws and government regulations."
Actions that have been brought Against Accountants
Responsibility to Clients
As I have pointed out elsewhere in this text, one of the critical responsibilities of accountants to their clients has got to do with the exercise of due professional care in the conduction of their duties. An audit firm could therefore be sued for failure to detect obvious red flags in the financial statements of its client. This is exactly what CliftonLarsonAllen, an audit and accounting services firm was sued for by its longtime client, Dixon. According to the State Journal-Register (2013), in filing the lawsuit, Dixon claimed that the audit and accounting firm had "missed obvious red flags such as bogus invoices." The fraud that CliftonLarsonAllen failed to uncover in this case had allegedly been committed by Dixon's comptroller, allowing him to embezzle approximately $53 million over a period of 20 years. The lawsuit according to the State Journal-Register (2013), sought "compensation...
According to SEC, the defendants -- leading financial professionals of no mean repute, scrutinized the firm's financial statements (line by line) with an intention of artificially inflating "income and distort financial performance" (SEC, 2014). The company then went ahead and used the phony numbers generated to raise significant amounts of money in the bonds market -- thereby failing in their responsibility to third parties to produce or present financial statements that were free of any misrepresentation or fraud. In the case of Seaboard Surety Co. v. Garrison, Webb & Stanaland, the district court judge according to Bruner and Haley (2007, p. 236) indicated that:
"When an accountant prepares financial statements in the knowledge or under conditions under which the accountant should reasonably expect that the employer is to provide the financial statements to third persons for purposes of inducing these persons to rely on the financial statements, the accountants contractual duty to perform the services skillfully and diligently runs to the benefit of such known third parties."
Responsibility to the Government
On December 3rd 2012, SEC set in motion administrative proceedings against a number of accounting/audit firms for their refusal to furnish it with audit work papers that the commission intended to rely on in its conduct of fraud investigations at Chinese entities listed in the United States (SEC, 2012). Essentially, accountants and accounting/auditing firms have a responsibility to the government and its various agencies to comply with certain kinds of requests in the course of investigations. One of the key exceptions to Rule 301, which has been mentioned elsewhere in this text, comes about in those instances where a CPA or an accounting/auditing firm for that matter is called upon to comply with government regulations and all applicable laws (Perkins, 2004). The firms in question were charged with "violating the Securities Exchange Act and the Sarbanes-Oxley Act, which requires foreign public accounting firms to provide the SEC upon request with audit work papers involving any company trading on U.S. markets" (SEC, 2012).
Reasons as to Why the Limited Accounting-Client Privilege should be Expanded
Accountants have an obligation to ensure that the information they receive from a client is kept confidential. According to Rosenthal (2010), "Federal law does not recognize a general accountant-client privilege." As the author further points out, although there is a limited confidentiality protection with regard to conversations/communications between clients and tax practitioners who happen to be federally authorized, the said protection is particularly narrow. For instance, the privilege in this case as does not apply to criminal cases and in that regard therefore, clients charged with criminal offenses may be left exposed.
In my opinion, the accountant-client privilege ought to be expanded so as to create a situation whereby the client does not withhold information which could be relevant to an accountant for fear that such information, if revealed, could be divulged later on. The relevance of candid professional conversations with the client cannot be overstated. It should also be noted that extending the privilege in this case would further reduce instances where the IRS abuses its mandate by, for example, seeking other nonrelated information that relates to the tax practices and strategies of a taxpayer. In my view, the expansion of accountant-client privilege would not have a significant effect on the whistle-blowing responsibility of accountants. This is more so the case given that accountants still have a responsibility to the client, third parties, and the government, as discussed in the earlier sections of this text. Discoveries of fraud, malpractices, and other instances of misconduct would therefore not go unreported were the accountant-client privilege to be expanded.
Priority: Which Party's Interests Should Come First?
As I have pointed out elsewhere in this text, some of the groups to which an accountant has a responsibility to include the client, the government and third parties. With that in mind, one important question that could be asked in this case is; who should take priority? One important provision contained in the AICPA Code of Professional Conduct, as Dusks, Dusks, and Ragatz (2011) point out has got to do with the independence of accountants. In the words of Duska, Duska, and Ragatz (2011), "if the accountant's function is to render accurate financial pictures, conflicts of interest that cause incorrect pictures do a disservice to whoever is entitled to and in need of the accurate picture." Essentially, an accountant ought to act in the best interests of all the parties to whom he owes responsibility. For instance, with regard to an audit firm, such a firm ought to be aware of the fact that its appointment is to the benefit of both the management and third parties such as investors/stockholders. In some instances,…
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