[Type the company name] | Responsibility | Unit 6 | | Sherry Rhodes | 11/29/2011 |

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Accountants have a responsibility to a company’s management investors, creditors, outside regulatory bodies and the overall integrity of financial markets. Accountant responsibility, in a definition, outlines who the accountant is working for. Even though an independent accountant may be hired by a company’s management, the responsibility of an accountant is owed to many others as well. The duty to uphold principles, standards and laws of accounting is owed to the companies, stockholders and creditors they account for. Accountants have an ethical responsibility to these entities that rely on their work to be accurate and precise. Accounts must use extreme care and follow established conventions and standards to present the true and fair view of the financial position of a company. Accountants owe the ethical and professional obligations to the previously mentions entities of management, stockholders, investors, creditors and regulatory and taxation authorities. These entities are divided into three groups: clients, third parties, and the government.
Clients are people or groups that use the professional advice or services of an accountant. Accounting clients could be small or large business, private parties, individuals or other accounting firms. The accountant-client relationship is unique and has never occupied the same status as the client relationship with other professions. An accountant’s responsibility to their client is to regard information obtained during the course of the professional relationship as a sacred trust of confidence. If that confidence was broken it would be a serious breach of professional duty. If the confidential information becomes relevant in a legal proceeding, the accountant may be subpoenaed to court to testify and share that confidential information. Unlike other professions like lawyers, physicians and priest are able to keep information confidential; accountants are not inclined to keep confidential information confident. Confidentiality privilege to accountants protects communications between clients and their accountants, enrolled agents, and enrolled actuaries. It is important for CPA’s to understand what is and is not protected under their responsibilities to their clients. Only the client is able waive the accountant-client privilege. The accountant is bound to keep privileged communications confidential unless or until the client determines differently. When an Accountant is conducting an investigation or audit, the IRS is able to obtain the factual information from the taxpayer on which the tax return was based. The Accountant-client privilege allows clients to discuss riskier tax strategies directly with their accountants without looking for separate advice from tax attorneys. It has not been discussed whether the confidentiality privilege extends to an accountant’s work product. Accountants should be aware that the privilege does not apply to the preparation of the client’s tax return; communication between the accountant and the client of facts needed to prepare the tax return and may be disclosed. The accountant-client responsibility does not shield all tax advice in all situations. Accountants should realize that they must proceed with caution when providing tax advice.
The accountant- third party responsibility is the next relationship. In the accountant-third party relationship a third party is considered to be a party who the accountant knew or should have known was relying on the information the accountant was preparing. The accountant’s liability to a third party comes into play when the accountant knew that a third party would rely on the information they are responsible for reporting. In cases of ordinary negligence the accountant does not have a duty to third parties. In negligent misrepresentation matters, accountants have a duty to third parties who would be known to rely on the misrepresentation. In other cases of intentional misrepresentation, accountants owe duty to third parties who could be reasonably foreseen to rely on the misrepresentation.
Finally the Accountant-government responsibility consists of the responsibility accountants have to the government and its agencies. Accountants must follow the rules and regulations set forth by the government. The Justice Department has the right to prosecute willful violations under either the 1933 Act or the 1934 Act. Accountants can be liable jointly and severally if they knowingly violate the law. When it comes to the government the accountant has a higher standard to meet to maintain accountability. Accountants must abide by the laws set forth by the government and its affiliates. There are much stiffer penalties on accountants who do not meet the responsibilities set forth by the government or who commit fraud or wrongdoing in the preparation of tax returns. The responsibilities of an accountant to the government is much more strict than with clients, but accountants have a high due diligence to all of their clients, third parties and the government.
There have been a number of court cases that pertain to the breach of the accountant’s responsibilities to the client, third parties and the government. In searching for various court cases that would represent the breach of these responsibilities, I was able to find three court cases that discussed these breaches. The first case discusses the breach of the accountant-client. The case of Oregon Steel Mills, Inc. v. Coopers & Lybrand, LLP is a case that took place in the Supreme Court of Oregon in 2004. Oregon Steel Mills, Inc. was a publicly traded company. Coopers & Lybrand, LLP audited the financial statements of Oregon Steel Mills, Inc. Oregon decided to sell the stock in one of its subsidiaries. Coopers then advised Oregon that, that specific transaction should be reported as a $12.3 million dollar gain. The advice given by Coopers was incorrect and was negligent on the part of Coopers. Two years later, Oregon began a public offering of additional shares of stock, with the intention to sell the shares of the stock to the public. Prior to Oregon filing the stock offering with the SEC, it found out from Coopers that the sale of the subsidiary had been misreported and that it would have to revise its financial statements. Because of this revision the offering was delayed from the original date of May 2 to June 13. During this period of delay the stock price fell. From the issues brought on by Coopers, Oregon ended up filing suit against Coopers to recoup the difference between the stock prices Oregon received from the stock and what they would have made had they been able to sell on May 2. Their loss equaled close to $35 million dollars. The original ruling was in favor of the defendant (Coopers), but the plaintiff (Oregon) appealed and the court overruled the original ruling.
The second court case describes the breach of the Accountant- third party responsibility. Marcus Bros. Textiles, Inc. v. Price Waterhouse, L.L.P., is the Supreme Court case that took place in North Carolina. The case was brought against Price Waterhouse by Marcus Brothers Textiles. Marcus Brothers claimed that Price Waterhouse’s audit of the financial statements for Piece Goods contained several material misrepresentations and reflected numerous departures from GAAP and that Price Waterhouse’s failure to alert readers of the financial statement to those departures was a direct violation of GAAS. The judgment in this case was in favor of Marcus Brothers. This case stated that in order for an auditor to be held liable to a third party, that party must demonstrate the accountant either knew that the third party would rely on his or her information, knew that the client for whom the audit report was prepared intended to supply the information to a third party who would rely on that information and the third party justifiably relied upon the information in its decision concerning the transaction involved or one substantially similar to it. Auditors owe duty to anyone whom they should have reasonably foreseen would rely on the misrepresentations.
The third case represents the accountant-government responsibility. The case of Arthur Andersen LLP v. United States is a case where the Court overturned the conviction against Aurthur Andersen’s previous conviction of obstruction of justice on the basis that the jury instructions did not properly portray the law Andersen was charged with breaking. The original conviction of Arthur Andersen took place following the fall of Enron, where Arthur Andersen instructed its employees to destroy documents relating to Enron after Andersen officials learned they would soon be investigated by the SEC. The charge of obstructing the official proceeding of the SEC was filed against Arthur Andersen in May of 2002. Even though Andersen instructed its employees to delete Enron related files the actions were within their document retention policy. In this case the retention policy was constructed to keep certain information private, even from the government; Andersen was not corruptly persuading their employees to keep the information private. When the original decision was appealed the Supreme Court ruled in a unanimous decision that the instructions allowed the jury to convict Andersen without proving that the firm knew it had broken the law or that there had been a connection to any official proceeding that prohibited the destruction of documents.
These three cases were very distinct in showing how the specified relationships work within the field of accounting. They made some great changes to how the field of accounting is seen by its clients, third parties and the government.
The accounting-client privilege at one point did not exist under federal law. Accountants had no obligation to keep client information confidential. When issues began to raise Congress passed the Internal Revenue Service Restructuring and Reform Act. This act reduced the IRS’s abuse of taxpayers. It gave taxpayers limited protection for tax advice that accountants may give their clients. The privilege only applied in civil cases that involved the IRS or the US government. Should the accounting-client privilege be expanded (as it is in law and medical fields)? The accounting-client privilege should be not be expanded in the accounting field as it is in law and medicine. The reason is because by doing this it will affect more than just a client; it may affect numbers of individuals. If this information that the shareholders, investors and creditors are relying on can be hidden in any way it could prove to be disastrous. If the accounting-client privilege was expanded, how would it affect the accountant’s whistle-blowing responsibility? If the accounting-client privilege was expanded the affect on the accountant’s whistle-blowing responsibility would be no more. They would have a duty to keep this information private, yet they would be breaking the law. There are upsides and downsides to the accounting-client privilege, but I would fear if these privileges were expanded to include all aspects of the accounting field. Therefore, keeping these privileges limited may be the best thing for our economy. The federal law provides consistent treatment across all states, yet the states provide varying levels of protection or recognition of privilege. In states that recognize the accountant-client privilege, some state that the privilege does not apply to criminal prosecutions. Many states vary on their interpretation of the restriction. Some stick to the “knew or should have known” standard to prohibit the use of the privilege. Since the privilege is somewhat open to interpretation it kind of opens up the ability of the States to decide how they are going to enact the privilege and which practitioners can be prosecuted on the charges of breaking the privilege or abusing the privilege.

Accountants are liable to a number of individuals or groups. They are liable to clients, the government, shareholders, community and a number of others. The question comes into play with in the role of the accountant on to which of these groups takes priority. I believe that priority lies with the client. This priority would be to make sure the financials are completed correctly and according to GAAP and GAAS. In the rundown the next in line would be place priority on the government. I believe to some extent the accountant must place the government within the top of their priority. I then believe that the shareholders should take third priority. In that priority the accountants need to make sure that the financial information they are collaborating in their reports is accurate and will not mislead the shareholders in any way. From here I think the next group would be the creditors. Again the financial reports need to be accurate so as to not mislead the creditors in any way. When it comes to the law where does priority lie beyond the rules and regulations? I believe that as long as the law is not broke the priority lies with the client. An accountant’s main priority is their client. Therefore they should always place their client first as long as they are within the walls of the law. If a company is honest and they have an honest background, there is no need to have to break the law to produce financial statements. The client should never place the accountant in a position that will affect the accountant’s ability to correctly perform their jobs. No job is worth going to jail for. I think a case where a company would have organized their books in a way that does not technically break the law, but could be confusing to investors or shareholders would be a case where stocks may have been sold. This would show on the financials an increase, but the increase was not from sales or an increase in business. If shareholders do not know this they may think the company is doing well when it actually is not.
In conclusion, the accountant has a responsibility to its clients, third parties and the government. The job of the accountant is very meticulous and must be performed in a precise manner. The outcome of the accountant’s findings must be available to all the needed individuals as well as fall in line with GAAP and GAAS guidelines. Accountants are under a lot of scrutiny in today’s economy due to many of the criminal minds within the accounting field. As our economy slowly repairs itself the accounting profession too will enjoy a recovery from the day to day scrutiny of the bad seeds within the field.

Bibliography

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This article discusses the fiduciary responsibility that Accountants have to their clients and other agencies. It explains how important the fiduciary relationship is to maintain and the liability on the accountant when this relationship is broken. 2. Legal Responsibility of Auditors. (2011). Harvard Business Review, 4(4),
The article discusses the Accountant/Client relationship. It details what information Accountants can and cannot share about their clients. It also discusses the terms of the business contract entered into when an Accountant/Client relationship forms. 3. AICPA (2006). ET Section 391 - Ethics Rulings on Responsibilities to Clients. Retrieved November 13, 2011, from http://www.aicpa.org 4. Beatty, J. F., & Samuelson, S. S. (2010). Business Ethics and Responsibility. In Introduction to Business Law. (3rd ed.). Mason, OH: South-Western Cengage Learning.
This chapter explains the ethics within the field of Accounting. It also discusses the benefits of behaving ethically within the accounting industry. 5. Coppage, R., & Williams, P. (2004). Considering Accounting Education in the USA Post-Enron. Accounting Education, 13, 17.
The article discusses the changes made to the Accounting profession after the Enron Scandal. It discusses how the government has changed the rules governing the accounting profession as well as the changes the government has made to the responsibilities held by Accountants. 6. Duska, R. (2005). The Responsibilities of Accountants. Geneva Papers on Risk & Insurance - Issues & Practice, 30(3), 15.

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This article shows how the responsibilities of accountants have changed since the early 1900’s. It discusses the changes to Accountant responsibilities after the Great Depression.