Accountants Legal and Ethical Responsibilities
-
Upload
arnold-rada -
Category
Documents
-
view
228 -
download
0
Transcript of Accountants Legal and Ethical Responsibilities
-
8/2/2019 Accountants Legal and Ethical Responsibilities
1/36
Accountants Legal and
Ethical Responsibilities
-
8/2/2019 Accountants Legal and Ethical Responsibilities
2/36
-
8/2/2019 Accountants Legal and Ethical Responsibilities
3/36
Securities Act of 1933
Objective: To provide prospectiveinvestors with accurate, complete, anddetailed information about newofferings of securities.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
4/36
Securities Act of 1933
Requires that all new issues ofsecurities sold in interstate commercemust be registered with the SECbefore sale, unless exempted.Registration includes certified financial
statements and prospectus.Prospectus must also be given to eachnew purchaser.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
5/36
Civil and Criminal Penalties
for ViolationLiability extends to Issuer, under writer,
directors/partners, all signers, and experts
(accountants and attorneys) who preparedor certified part of registration statement.CPA liable for false, misleading or omittedinformation.
Plaintiff need not prove reliance by plaintiffDue diligence (reasonable grounds to believe
accuracy) is defense.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
6/36
Civil and Criminal Penalties
for Violationa. Criminal fine and/or imprisonment.
Fines up to $10,000 and/or imprisonment up
to five years.
b. Civil Monetary damages toinvestors if there is a failure to register,registration statement or prospectuscontained materially false, misleadingfactual information, or omitted material
factual information.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
7/36
Contract
Duty determined by terms of engagement letter.Liability extends to intendedbeneficiaries known to accountant. Lending institutions
-
8/2/2019 Accountants Legal and Ethical Responsibilities
8/36
Negligence
A. Duty of professional careB. Failure to act in accordance withthose dutiesC. Proximate causeD. Loss of damage
Liable to client, known third parties,and possibly foreseen parties (sameclass as known third parties)
-
8/2/2019 Accountants Legal and Ethical Responsibilities
9/36
FraudRequires knowledge, or grosslynegligent or reckless conduct.Extends liability to reasonablyforeseeable third parties.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
10/36
Securities Exchange Act of
1934Regulates ongoing trading of securities
after issuance.
1. Prohibits Fraud(Section 10b,Rule 10b-5
Knowing issuance of financial reportscontaining false, misleading information oromitting material information in a report.(Plaintiff must prove intent and reliance.)
-
8/2/2019 Accountants Legal and Ethical Responsibilities
11/36
Racketeer Influenced and CorruptOrganizations Act (1970)
Federal Crime to engage in racketeeringactivity in the acquisition, maintenance or
conduct of the affairs of a businessenterprise or to conspire to do anyracketeering activities.Incorporates by reference 26 federal crimesand 9 state felonies, including: securitiesfraud, mail fraud and wire fraud.Requires two or more offenses.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
12/36
RICO
Commission of two or more predicateacts within a 10 year period
-
8/2/2019 Accountants Legal and Ethical Responsibilities
13/36
Racketeer Influenced andCorrupt Organizations Act(1970
PenaltiesCriminal - $25,000 per violation Up to twenty years imprisonment
Civil Government : Divestiture ordissolution of business
Private: Treble damages, Attorneysfees
-
8/2/2019 Accountants Legal and Ethical Responsibilities
14/36
-
8/2/2019 Accountants Legal and Ethical Responsibilities
15/36
Duty of Inquiry
If CPA becomes aware of suspiciouscircumstances, he/she has a duty toinquire
A CPA cannot rely on Management'srepresentations.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
16/36
Sarbanes-Oxley Act of
2002Creates a five-member public company accountingoversight board. The Board will have fivefinancially-literate members, appointed for five-year
terms. Two of the members must be or have beencertified public accountants, and the remainingthree must not be and cannot have been CPAs.Members of the Board are appointed by theSecurities and Exchange Commission, "afterconsultation with" the Chairman of the FederalReserve Board and the Secretary of the Treasury.
S i 103 A di i Q li
-
8/2/2019 Accountants Legal and Ethical Responsibilities
17/36
Section 103: Auditing, QualityControl, And IndependenceStandards And Rules .
The Board shall:(1) register public accounting firms;
(2) establish, or adopt, by rule, "auditing,quality control, ethics, independence, andother standards relating to the preparationof audit reports for issuers;"
(3) conduct inspections of accounting firms;(4) conduct investigations and disciplinary
proceedings, and impose appropriate
sanctions
-
8/2/2019 Accountants Legal and Ethical Responsibilities
18/36
Standard Setting
The Board would be required to"cooperate on an on-going basis" withdesignated professional groups of accountants and any advisory groupsconvened in connection with standard-
setting,
-
8/2/2019 Accountants Legal and Ethical Responsibilities
19/36
Section 104: Inspections of RegisteredPublic Accounting Firms
Annual quality reviews (inspections)must be conducted for firms that audit
more than 100 issues, all others mustbe conducted every 3 years. The SECand/or the Board may order
a special inspection of any firm at anytime.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
20/36
Section 201: Services Outside The ScopeOf Practice Of Auditors; Prohibited
Activities.
It shall be "unlawful" for a registered publicaccounting firm to provide any non-audit service toan issuer contemporaneously with the audit,
including:(1)bookkeeping or other services related to the
accounting records or financial statements of theaudit client;
(2)financial information systems design andimplementation;
(3) appraisal or valuation services, fairness opinions,or contribution-in-kind reports;
-
8/2/2019 Accountants Legal and Ethical Responsibilities
21/36
Section 201: Services Outside The ScopeOf Practice Of Auditors; Prohibited
Activities.
(4) actuarial services;
(5) internal audit outsourcing services;
(6) management functions or human
resources;
(7) broker or dealer, investment adviser,
or investment banking services;
-
8/2/2019 Accountants Legal and Ethical Responsibilities
22/36
Section 201: Services Outside The ScopeOf Practice Of Auditors; Prohibited
Activities.
8) legal services and expert servicesunrelated to the audit;
(9) any other service that the Boarddetermines, by regulation, isimpermissible.
The Board may, on a case-by-case basis, exempt fromthese prohibitions any person, issuer, publicaccounting firm, or transaction, subject to review bythe Commission.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
23/36
Section 203: Audit PartnerRotation.
The lead audit or coordinating partnerand the
reviewing partner must rotate off of theaudit
every 5 years.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
24/36
Section 302: CorporateResponsibility For Financial
Reports.The CEO and CFO of each issuer shall preparestatement to accompany the audit report to certify the
appropriateness of the financial statements anddisclosures contained in the periodic report, and
that those financial statements and disclosuresfairlypresent, in all material respects, the operations andfinancial condition of the issuer."
-
8/2/2019 Accountants Legal and Ethical Responsibilities
25/36
Section 401(a): Disclosures In PeriodicReports; Disclosures Required.
Each financial report that is required to be preparedin accordance with GAAP shall
reflect all material correcting adjustments . . . thathave been identified by a registered accountingfirm . . . ."
"Each annual and quarterly financial report . . .shall disclose all material off-balance sheettransactions" and "other relationships" with"unconsolidated entities" that may have a materialcurrent or future effect on the financial condition of
the issuer.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
26/36
Section 401(a): Disclosures InPeriodic Reports; Disclosures
Required.The SEC shall issue rules providingthat pro forma financial information
must be presented so as not to"contain an untrue statement" or omitto state a material fact necessary in
order to make the pro forma financialinformation not misleading.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
27/36
Title VIII: Corporate andCriminal Fraud
Accountability Act of 2002.Felony to "knowingly" destroy or create
documents to "impede, obstruct orinfluence any existing or contemplated federal investigation.
Auditors are required to maintain "allaudit or review work papers" for fiveyears.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
28/36
Title IX: White Collar CrimePenalty Enhancements
Maximum penalty for mail and wire fraudincreased from 5 to 10 years.
SEC may prohibit anyone convicted of securities fraud from being an officer ordirector of any publicly traded company.Maximum penalties for willful and knowing
violations of this section are a fine of notmore than $5,000,000 and/or imprisonmentof up to 20 years.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
29/36
Professional
Responsibilities AICPA Code of Professional ConductPrinciples
A. CPA should exercise sensitiveprofessional and moral judgment in allCPA activities.
B. Demonstrate commitment to
professionalismC. Perform responsibilities with integrity tomaintain public confidence.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
30/36
Professional
Responsibilities4. Maintain objectivity and be free of
conflicts of interest.
5. Be independent in fact and inappearance.
6. Strive to improve competence andquality of services and discharge
duties to best of his/her ability.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
31/36
Rules
Rule 101 Independence A. CPA shall be independent in the
performance of professional servicesrendered. (Tax and consulting do notrequire independence)
-
8/2/2019 Accountants Legal and Ethical Responsibilities
32/36
Independence Rule 101
Impaired by: Direct or material indirect financial interest in
client
Trustee or executor of trust or estate which hasfinancial interest in client Joint of closely-held business investment with
client or officer, director of principal stockholder.
(Fee outstanding for service performed more thanone year prior to audit takes on characteristics of a loan from accountant to client.)
-
8/2/2019 Accountants Legal and Ethical Responsibilities
33/36
Competence (Rule 201)
CPA should not undertake anyengagement that the CPA cannot
reasonably expect to complete withprofessional competence.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
34/36
Confidentiality (Rule 301)
CPA should not disclose anyconfidential information obtained in
the course of an engagement withoutconsent of the client, unless requiredto do so by law, AICPA regulations or
state CPA societies.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
35/36
Contingent Fees (Rule
302)Professional services should not berendered under a contingent fee basis.
Prohibited for the filing of an origial oramended tax return. However,permitted for representing a client inan examination of a clients tax return.
-
8/2/2019 Accountants Legal and Ethical Responsibilities
36/36
Discreditable Acts (Rule
501CPA should not commit an act inpersonal or professional life that
discredits the profession