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Accountant Responsibility

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Submitted By akindebe
Words 2013
Pages 9
Content
Abstract 3
Introduction 4
The Accountant’s responsibility to clients 4
The Accountant’s responsibility to third parties 5
The Accountant’s responsibility to the government 5
Action or claims against accountants by clients 6
Action or claims against accountants by third parties 6-7
Action or claims against accountants by the government 7
Accounting-Client privilege 7
Whistleblowing 8
Conclusion 8-9
Reference 10-11

AC502-01N: Regulation
Unit 6 Accountant Responsibility
Oluseye Akindebe
Kaplan University
May 05, 2015
Professor: Christopher Zapalski

Abstract: Accountants assist to make sure that companies run with competence. They ensure that financial records are kept accurately, and that taxes are paid at the right time. The various responsibilities of accountants to their clients, to third parties, and the government will be discussed. Ethically, accountants are obligated to collect financial data, analyze them, and provide accurate and unbiased financial information for various accounting users like companies, clients, federal government, state, and local governments. Since there are many accounting users who are earnestly waiting to make life changing decisions based on the financial information they received from the accountants or auditors, it is imperative that financial information should be free of misleading information. If accountants are negligent in the process of carrying out their duties by providing misleading information, they should be held liable for their negligence. As stated by (Beatty, Samuelson, and Bredeson, 2013), an accountant is liable for negligence if: 1) “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 circumstance.” 2) “The accountant’s violation of duty caused harm to the client.”
Accountants are supposed to be trusted because they handle confidential financial information. They are responsible for keeping daily financial records, and perform consultancy services ethically by giving expert analysis and advice of the market trends. While accountants may have specific opinions as to what their clients should do, they should always adhere to a professional code of conduct by following the Generally Accepted Accounting Principles (GAAP) in their daily practices whether the report they are preparing is for the immediate clients, a third party, or government.

Introduction
Accountants are responsible for preparing, examining, and analyzing accounting records; financial statements; and other financial reports in accordance with the General Accepted Accounting Principle (GAAP). For over a decade, scandals and the constant filings of lawsuits has plagued the accounting profession, leading to a generally negative perception that the manner in which accountants perform their duties within the business environment is nothing short of unethical (Grosu, Almaşan, & Circa, 2014). The profession is tainted with a history of its inability to provide fair financial statements despite the availability of all the accounting standards to help capture relevant information. Accountants should always remember that there are many users, for example, investors, management, creditors, and regulatory bodies, who are relying on the accountant’s integrity and professional ethics to make the right investment decision. This is why it is paramount for accountants to prepare fair financial statements. For the purpose of this paper, I shall narrow the accountant’s responsibilities to the clients, third parties and government.
The Accountant’s responsibility to clients
Accountants have diverse responsibilities to their clients. A Certified Public Accountant (CPA) is not expected to have just one client. They have many clients, ranging from individuals, to groups of people, and companies. The clients of Management Accountants (MA) are considered internal to the organization. These clients would include direct supervisors, departmental heads, as well as work executives. Both CPAs and MAs are professional accountants. They need to be aware of their financial responsibilities to their clients, as well as be aware of how to carry out their responsibilities professionally. The following are some of the roles accountants perform for their clients: * Record Keeping * Advice and Consultation * Confidentiality and * Ethics
The Accountant’s responsibility to Third parties
Accountants (CPA) are responsible to third parties who may rely on the audited financial statements. The financial statement must be received directly from the audited entity. For the purpose of this research paper, a third party is a non-client. Though a third party might be classified as a non-client to the accountant, accountants are still responsible to them because third parties are among those accountants who foresee receiving and relying on the financial statements. Therefore the third party who has relied on the financial statement for decision-making purpose may sue if there are any negligent misrepresentations on the statement.
The Accountant’s responsibility to the government
Accountants have duties towards government to help maintain and examine the records of government and its agencies. For example, the FBI could be considered an agent to the government. The same applies to the Security and Exchange Commission (SEC) who is also considered an agent to the government. Government accountants are responsible for examining and evaluating financial data to help expose criminal activities. SEC as an agent to the government relies on accountants or auditors to carry out investigations if there is any prove of illegal acts by public companies (Salwen, 1990). The House of Senates approved a provision, “the accounting provision” which states that “Accountants who have found wrongdoing must first disclose the problem to corporate management, which then has a chance to take remedial action. If management doesn’t take such action, the accountant then must inform the company’s board, which is expected to inform the SEC within one business day that it has received the accountant’s warning” (Salwen, 1990, para. 4). With this bill passed, those corporations who are in the habit of performing any illegal acts are aware of the facts that accountants or auditors are obligated to disclose any illegal act, and bring that to the government’s attention. This tends to change the idea of corporate governance.
Actions or claims against accountants by clients
Every accountant has a duty to keep the information of their clients confidential, but the reverse is the case regarding the Atlanta based accountant – Donald S. Toth. This case relates to insider trading by him and James A. Nash in the common stock of O’Charley’s, Inc. “The Securities and Exchange Commission charges an accounting firm partner in Atlanta for insider trading in the stock of a restaurant company based on confidential information he learned from a client on the board of directors who came to him for tax advice in advance of a tender offer announcement” (Skola, 2014). Toth was supposed to keep the information of his clients for tax planning purposes confidential, but he chose to misuse it for personal investments and provided the details to other clients for their misuse. Toth and all the collaborators were found guilty Sterna, S. (2013). They were required to pay disgorgement for a total of $423,967.59.
Actions or claims against accountants by third parties
There are growing patterns of claims against accountants because of the rise in audits and tax advice. Many investors including third parties have lost their life savings by merely believing misrepresented reports of some accountants or auditors. Whenever businesses fail, investors often look for whom to blame to recover their claims. Having said all these, a third party, who by no means has any contact with the auditor, can still sue the CPA firms under the legal term called “privity of contract. Privity is a legal term referring to an agreement between the third party and auditor (Sterna, 2013). For CPA to be held liable, privity of contract must exist without which a non-client third party will not be able to lay claims on the CPA.
Actions or claims against accountants by government
SEC filed claims against big four China affiliates Accounting Firms-Deloitte Touche Tohmatsu, EY Hua Ming, KPMG Huazhen, and PwC Zhong Tian. These companies were found violating the U.S. Securities Laws. They refused to produce audit work papers and other documents related to China-based companies under investigation by the SEC for potential accounting fraud against U.S. investors. Each of the Big 4 affiliates were fined $500,000 coupled with sanctions, while the firms were in the process of providing the documents (Whitehouse, 2015).
Accounting-Client Privilege
Accountant-client privilege is to protect the privacy of financial information, and other confidential information, exchanged between accountants and their clients. The purpose of the accountant-client privilege is to shield the conversations between the accountants and their clients from being disclosed to the third parties (Rosenthal, 2010). This privilege exists whenever there is communication between the client and the client’s accountant or between any of the client’s representative and any representative of the accountant. The primary rationale behind the accountant-client privilege is valid in the sense that the privilege encourages honest communication between a client and an accountant. Without the accountant-client privilege in place, clients might hold back some vital information that would keep the accountant in the dark; thus, preventing the accountant from doing his or her job adequately.
Whistleblowing
A whistleblower is someone that exposes misconduct, illegal act or alleged fraudulent activities. If auditors are considering to expose any fraudulent behavior, the auditors could make their allegations internally within the organization or externally which is the law enforcement agencies. “Auditors who suspects that a client has committed an illegal act must notify the client’s board of directors” (Beatty, Samuelson, Bredeson, 2013). If the board of directors refuse to take the right action, auditors must issue an official report. After the official report is issued to the board of directors, the boards are required to notify the Security and Exchange Commission (SEC) within one business day with a copy of the notice to the accountant.
Conclusion
Accountants have responsibilities to their clients, third parties, and government. Accountants are responsible to validate financial statements and make sure that it is free of all misrepresentation statements. Accountants must perform their responsibilities in accordance with all relevant principles, standards and laws. Before a third party can hold an accountant liable, there must be privity of contract without which a non-client third party will not be able to lay claims on the CPA. Accountants are supposed to be trusted because they handle confidential financial information. They are responsible for keeping daily financial records, and perform consultancy services ethically by giving expert analysis and advice of the market trends. While accountants may have specific opinions as to what their clients should do, they should always adhere to a professional code of conduct by following the Generally Accepted Accounting Principles (GAAP) in their daily practices whether the report they are preparing is for the immediate clients, a third party, or government.

Reference
Grosu, C., Almaşan, A., & Circa, C. (2014). The current status of management accounting in Romania: the accountants' perception. Accounting & Management Information Systems / Contabilitate Si Informatica De Gestiune, 13(3), 537-558.
Hales, J., & Johnson, J. (2015). Sustainability: What Is It and Why Should Accountants Care?. CPA Journal, 85(4), 12-13.
Paulsson, G. (2012). The Role of Management Accountants in New Public Management. Financial Accountability & Management, 28(4), 378-394. doi:10.1111/j.1468-0408.2012.00552.x
Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2014-15 Edition, Accountants and Auditors, on the Internet at http://www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm (visited April 28, 2015).
Gormley, R. J. (1988). Developments in Accountants' Liability to Nonclients for Negligence. Journal Of Accounting, Auditing & Finance, 3(3), 185-212.
Salwen, K. G. (1990, Oct 05). House bill requires accountants to tell the SEC of companies’ illegal acts. Wall Street Journal Retrieved from http://search.proquest.com/docview/398279352?accountid=34544
Skola, E. P. (2014). SEC Charges Atlanta-Based Accountant With Insider Trading on Confidential Information From Client (Report No. 2014-166). Retrieved from U.S. Securities and Exchange Commission: http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542641443
Sterna, S. (2013). Defending Third-Party Audit Claims. Journal Of Accountancy, 215(5), 18-19.
Whitehouse, T. (2015). SEC Ends Standoff With Big 4 China Affiliates. Compliance Week, 12(134), 6-8.

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