Accounting Principles And Standards Of Professional Conduct

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As accountants and auditors we are held to, and must comply with, two standards of professional conduct. Those standards are generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS). GAAP enforces the uniform standards for preparing and presenting financial statements. GAAS governs the ways and means are used by public accountants when conducting an audit. GAAS establishes the standards for field work and mandates that sufficient evidence be found to provide reasonable assurance for issuing an audit opinion.

Liability to Clients

Please remember, as accountants we are held liable to our clients when we enter into contracts and are hired to perform services. The liability we face can come from items
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An accountant that acts with “reckless disregard” for the consequences of their actions is said to have committed constructive fraud. An accountant that commits fraud is liable for compensatory and punitive damages to any foreseen person that could be injured. A fraudulent act is a false depiction of a material fact and it is made with the objective to deceive the user. When an accountant provides auditing and accounting services they owe a duty to their clients of reasonable care, knowledge, skill and judgment. If an accountant breaches the duty of reasonable care, knowledge, skill, and judgment, he or she is believed to have committed a tort which may be classified as accounting malpractice or negligence. An accountant who commits negligence can be held liable for falling to exercise a certain duty of care to their clients. For example, if an auditor discovers questionable transactions while performing an audit, the accountant should investigate it and inform the client of the results.

As a result of the case of Bily vs. Arthur Young in 1992, the Supreme Court issued a hierarchy of duty for accountants who prepare incorrect financial statements. In order to be found liable under ordinary negligence, an auditor must owe a duty to his or her client only. The duty expands to receivers of the financial statements under negligent misrepresentation. The Supreme Court defined the receivers as
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