Accountant Responsibility Free Essays

string(337) " by the CPA and therefore the company’s engagement letter with the firm was violated and the CPA’s in question â€Å"breached his duty to his client by failing to exercise the degree of skill and competence that an ordinarily prudent accountant would under the circumstances† making the firm negligent \(Beatty ; Samuelson, 2010, pg\." Accountant Responsibility Introduction Accounting by definition is â€Å"The bookkeeping methods involved in making a financial record of business transactions and in the preparation of statements concerning the assets, liabilities, and operating results of a business† (The American Heritage). An accountant’s responsibility is not something that is equally split or separated by category. It is not something that can be defined easily or without a lot of research and thought. We will write a custom essay sample on Accountant Responsibility or any similar topic only for you Order Now An accountant responsibility is said to be between their clients, third parties, and the government itself, but it is also a personal responsibility.An accountant takes trust into their hands from others, and what is done with that trust is how an accountant makes their name. A choice will always have to be made one way or another but the choice should maintain your reputation as a trust worthy, ethical, and legal accountant. When you think of scandals in the accounting industry, what actions come to mind that causes the scandals in the first place? When accountants lie about statements or try to hide money, add money, or change money, usually for the benefit of themselves and others such as CEO’s, right?Well those are what require regulation from the government and accounting responsibilities to be reevaluated. Over the past few years we have seen the economy go from a feeling of reaching new heights, to the lowest of lows and with that came the accounting scandals and the need to expand government regulation. In response to the changes in the economy the public wanted accounting standards and government regulation to assist in alleviating the way financials were being reported so the money that was being lost wasn’t nearly as detrimental as it looked.The changes in the economy required changes in regulation. The changes in regulation set the need for accountant responsibility to be expanded. This paper is to go into details about the â€Å"three major parties† that accountants have a responsibility to; their clients, third parties, and the government. †¢ Responsibility to clients An accountant’s contract between their clients and themselves is called an engagement letter (Beatty ; Samuelson, 2010, pg. 379). This letter is the legal responsibility an accountant has and can specify exactly what an accountant is supposed to do for a company or client.A client needs to prove two things in order for their accountant to be liable for negligence; the accountant breached his duty to his client by failing to exercise the degree of skill and competence that an ordinarily prudent accountant would under the circumstances and the accountant’s violation of duty caused harm to the client (Beatty ; Samuelson, 2010, pg. 379). With these statements covering the legal aspect of the accountant’s responsibility to their clients the next portion will stick to the ethical concerns one of which can also be considered a legal concern, fraud.An accountant has a choice to make when they come to work each day. They can choose to tell the truth and have a successful career ahead of them, or they can choose to lie, cheat, or steal and be found guilty. An accountant is liable for fraud if (1) he/she makes a false statement of fact; (2) he/she either knows it is not true or recklessly disregards the truth; and (3) the client justifiably relies on the statement (Beatty ; Samuelson, 2010, pg. 380). †¢ Responsibility to third parties Accountants who fail to exercise due care are liable to (1) anyone they knew would rely on the information; and (2) anyone else in the same class† (Beatty ; Samuelson, 2010, pg. 381). This makes the third party in question mean just about anyone besides the government or the clients.The biggest responsibility through a third party in general will be to the public. Professional accountants owe their primary loyalty to the public interest, not just to their own financial interests, company directors or management, or current shareholders at the expense of future shareholders (Brooks ; Dunn, 2010, pg. 1). First and foremost we are to ensure that all activity is ethical in consideration to the public interest. If an action on a financial statement is beneficial to the company, the accountant, the current shareholders, the owner, and yet in some way still harms the public in the long run because of the way it is being reported, then it is ethically wrong to post it in that manner. Even if the current owners or shareholders push to see it reported in that way, to ensure you keep your reputation as an ethical accountant now and in the future, it is to be reported as intended to show the truth.There will be times when it seems more beneficial, monetarily, to yourself to take advantage of grey areas and loop holes that are given. Reread the last sente nce and understand when the word â€Å"seems† is there, in reality, the benefits do not exist in the long run. †¢ Responsibility to the government An accountant’s responsibility to the government starts and ends with following the laws given and the regulation specified by the government. The regulation laws that deal with accountant responsibility are many but the main ones are the Sarbanes-Oxley Act of 2002 (SOX) and the Securities Act of 1933 ; 1934.Criminal acts made by accountants that are punishable by law and could result in a fine or even going to jail include but are not limited to willful violations, wrongdoing in the preparation of tax returns, and even violations of the security laws (Beatty ; Samuelson, 2010, pg. 383). Action/Claim against Accountants or Accounting Firms †¢ Responsibility to clients Angelo P. Danna, CPA and Mark P. Dentinger, CPA gives an example of accountants not holding up the responsibilities to their clients. Both of these accountants were a part of an audit for ILC Technology and the opinion of the audit was not that of a qualified auditor (Sec. ov). To give a client an audit knowing it was not a qualified auditor however it did not give an unqualified opinion. The issue here is that the company was given the wrong information by the CPA and therefore the company’s engagement letter with the firm was violated and the CPA’s in question â€Å"breached his duty to his client by failing to exercise the degree of skill and competence that an ordinarily prudent accountant would under the circumstances† making the firm negligent (Beatty ; Samuelson, 2010, pg. You read "Accountant Responsibility" in category "Papers" 379). †¢ Responsibility to third partiesThe largest case to date that has to do with third parties and an accounting firms responsibility to that third part was the one whom the rule was written after. â€Å"In Ultramares, Touche, Niven ; Co. had conducted an audit of Fred Stern ; Co. Stern, seeking a loan, later provided a copy of the audit report to a potential creditor. The creditor provided the loan and when Stern failed, the creditor sued Touche to recover its loss. In its opinion, the court declined to hold the accounting firm liable to an unknown third party who relied on the audit report. In his famous statement, Judge Benjamin N.Cardozo distinguished accountants from others and set forth the consequence of extending liability to parties whose reliance upon a statement could not be foreseen† (Moore, 1995). †¢ Responsibility to the government The specific example of an accountants responsibility to the government was breeched can be found in the Adelphia scandal. â€Å"The Commission brought civil and administrative proceedings against Deloitte for violating GAAS in connection with its audit of Adelphia’s 2000 Financial Statements† (SEC. gov). Imagine any normal family trying to start a family business. That is what began Adelphia in this case.Adelphia was ran by the Rigas family; John, Timothy, Michael, and James. Adelphia had a seven member board and the family itself held four of those seats, automatically given them a right of power in a corporation that some may have considered â€Å"fishy† before the scandal ever started happening (Brooks ; Dunn, 2010, pg. 297). Accounting-client Privilege Expansion †¢ Should it be expanded? Why or why not? A part of accounting-client privilege that is the most controversial is confidentiality. Confidentiality proves that what is legal is not necessarily ethical and what is illegal is not necessarily unethical.Rule 301 of the Code of Professional Conduct of the American Institute of Certified Public Accountants (AICPA), which states that a member in public practice is not allowed to disclose any confidential client information without the consent of the client (Werner, 2009). On the other hand take this information from an article published in the March 1953 Journal of Accountancy: It seems clear that voluntary disclosure of confidential information by a CPA might be justified ethically only if it were necessary to prevent a crime not yet committed.There seems no legal or ethical requirement of voluntary disclosure of past acts, even though fraudulent, so long as there is no affirmative act of concealm ent on the part of the CPA such as suppression of the evidence, harboring of the criminal, or other positive act designed to conceal from the authorities the fact that the act has been committed, and so long as the CPA has not relieved, comforted, or assisted the offender to hinder or prevent his punishment (Editorial, â€Å"Confidential Relationship Between CPA and Client,† p. 95). This also ties back in with professional accountants owing their primary loyalty to the public interest and to adhere with the public’s interest breaking confidentiality may be necessary. †¢ Whistle-blowing responsibility if it were expanded Imagine the accounting-client privilege being expanded to the same point as attorney-client privilege. Meaning that no matter what was said or what was known by the attorney because the client confided the truth with them, it could not be repeated.It is more than obvious that whistle-blowing would be non-existent at that point. However, there are in betweens when it comes to accounting client privilege currently, and one that goes just as far as attorney-client privilege. Auditors who suspect that a client has committed an illegal act must notify the client’s board of directors (Beatty ; Samuelson, 2010, pg. 383). After that point in time if nothing happens an official report has to be submitted and then the SEC has to get involved in order to ensure the problem is taken care of. It is an accountant’s responsibility to give correct information to a company’s share-holders and the public and if the accounts first responsibility was to its clients, well you can imagine the consequences. Regulation would seem nonexistent at that point because there would be no need for an accountant to report any wrong doings and in turn wrong doings could basically be gotten away with. Conclusion First and foremost, it is my belief that an accountant does owe their first responsibility to the public. The public looks to accountants to find the truth in a land full of confusing financial statements.The only way for the public to know what is really going on with a company’s books is through the interpretation that is giving by an accountant. Moral standards and decent behavior in those who practice bookkeeping methods are essential when preparing statements concerning the assets, liabilities, and operating results of a business (Vaux, 2010 ; The American Her itage). Even if the current owners or shareholders push to see it reported in that way, to ensure you keep your reputation as an accountant now and in the future, it s to be reported as intended to show the truth. There will be times when it seems more beneficial, monetarily, to yourself to take advantage of grey areas and loop holes that are given when you are an accountant. Reread the last sentence and understand when the word â€Å"seems† is there, in reality, the benefits do not exist in the long run and it is also the reason for needing regulation and accounting standards. An accountant is entrusted as someone who can complete financial statements in an honest and accurate way.They have to be able to tell it how it is whether it is to the CEO, the shareholders, or the public who is looking at the financial statements as possible indicators of investment opportunities. How to cite Accountant Responsibility, Papers