Unit 6 Assignment

REGULATION – AC 502 UNIT 6 ASSIGNMENT TOPIC: Accountant Liabilities and Ethics FOR: DR. ELAINE LERNER SUBMITTED BY: GABRIEL SAMBO OCTOBER 22, 2019 An accounting firm can be exposed to a number of professional liability if and when they act contrary to the Sarbanes-Oxley Act of 2002, commonly known as the SOX Act. To ensure the laws under the act are fully implemented, the Public Company Accounting Oversight Board (PCAOB) was established so confidence in the accounting profession can be restored and the users of the accounting information can receive accurate and complete financial information. These liabilities can come from the clients of the firm or even from a third party. One major area liabilities can arise in through Conflict of Interest. According to Beatty et al, (Intro.to Business Law), an accounting firm cannot audit a company if one of the client’s top officers has worked for that accounting firm within the prior year and was involved in the company’s audit. An accounting firm can also be liable for negligence to a client who can prove that; the firm breached its duty by failing to exercise the degree of skill and competence that an ordinary prudence accounting firm would under the circumstance. Also if the violation of such duty caused harm to the client. These liabilities as I stated can also come anyone who they know would rely on the information and anyone else in the same class. An accounting firm can also be held liable for fraud. This is, however, a very high standard and for it to be met, the client must prove that the act was a misstatement or omission of an important fact, knowingly or recklessly, that the plaintiff relies on in purchasing or selling. Whether providing services as an accountant or auditor, an accountant owes a duty of care to the client and third parties who foreseeably rely on the accountant's work. Accountants can be sued for negligence or malpractice in the performance of their duties, and for fraud. However, if he works for or represents a corporation in executing such a task, his liabilities automatically become the liabilities of the corporation. Just as in every other traditional corporation, the accountant acts under the umbrella of the firm they represent and hence cover under the limited liability principle. Providing advice to clients on the finances of their business is a huge responsibility. The very nature of accounting means that if you were to advise a client poorly or make a mistake in the preparation of their accounts, they would almost certainly suffer financially. It for the reason that an owner of an accounting firm or even an individual accountant must ensure they have an accountant’s professional indemnity insurance. This provides cover in the event you are alleged to have acted wrongly in your position as a director or owner. It covers the legal costs and expenses of defending you against disqualification as a director and related investigations by, for example, a regulator or industry body. References: Beatty, J. F., Samuelson, S. S., and Abril, P.S. (2016). Introduction to business law. (5th ed.). Fitsmallbusiness.com https://fitsmallbusiness.com/cpa-insurance-for-accountants/