It is as important to have a good accountant that one trusts as to have a good lawyer that one trusts. But while the duties and definitions applicable to what is a lawyer are well known, the various accounting services that can be rendered result in different types of professionals being available to provide them. This article shall briefly outline the types of accountants licensed and provide a description of the services rendered and the duties imposed.
An accountant is one who is trained in keeping accounts and books of accounts correctly and properly. An accountant performs a variety of roles including the review, audit, organization and certification of financial information. The various types of accountants include; auditors, forensic accountants, public accountants, tax professionals, financial advisors and consultants. Accountants have a minimum of a bachelor’s degree, but often have other advanced degrees, and all accountants must be certified through the appropriate state board.
Most states have statutes that provide for a state board of accountancy or a board of certified public accountants. Statutes may require the registration of accountants and accounting firms with the state board of accountancy. A state has the power to revoke the license which grants the right to practice public accountancy. Regulations relating to accountants in various states are discussed in the links below.
There are restrictions on practice of accounting. Non-certified accountants are prohibited from practicing accounting. In addition, accountants are restricted from practicing law.
No confidential accountant-client privilege exists under common law. See our article on attorney-client privilege. However, several states have now adopted the privilege by statute and some statutes explicitly permit disclosure in judicial proceedings. An accountant, however, has the right to retain data created in the course of auditing a client’s account and ascertaining its tax liability. However, if the accountant is an employee, the ownership vests in the employer.
The standard of care applicable to the conduct of audits by public accountants is the same as that applied to doctors, lawyers, architects, engineers, and others furnishing skilled services for compensation, and that standard requires reasonable care and competence. The accountant owes a duty only to his or her client, for ordinary negligence. In cases of negligent misrepresentation, the duty expands to specifically intended beneficiaries of the report who are substantially likely to receive the misinformation. In cases of intentional misrepresentation, the accountants owe duty to third parties who could be reasonably foreseen to rely on the misrepresentation.
Types of Accounting Services:
Different types of accounting services that can be provided include:
- Audits
- Forensic accounting (for testimony)
- Public accounting
- Tax preparation
- Financial advising
- Business Consulting
Auditing is an intensive study of the records and reports of an enterprise by accounting specialists. Auditors help to ensure firms efficiency by keeping public records accurate and confirm payment of taxes properly and on time. Auditors analyze and communicate financial information for various entities such as companies, individual clients, and Federal, State, and local governments. Other than carrying out the fundamental tasks of the occupation they provide information to clients by preparing, analyzing, and verifying financial documents.
Forensic accounting is a special area of practice in accountancy where accounting, auditing, and investigative skills are used to assist the court or arbitrator in legal matters. Forensic accountants are also known as forensic auditors or investigative auditors. They often investigate white-collar crimes including issues like securities fraud, embezzlement and bankruptcies.
A public accountant is a general accountant who either works for an accounting firm or has his or her own private practice offering services to the public. Public accountants’ daily tasks are of a wide range that includes auditing, tax and financial planning, and consulting and providing advice about compensation and benefits.
Certified Public Accountant (CPA) is the statutory credential provided for qualified accountants in the U.S. for persons who have passed the Uniform Certified Public Accountant Examination.
A tax professional is specifically trained in the field of taxation. The U.S. Department of Treasury empowers tax professionals to represent taxpayers before all administrative levels of the Internal Revenue Service (IRS) for audits, collections, and appeals.
A financial advisor is a person who provides investment advice and financial planning services to individuals, organizations, and governments. Usually, a financial advisor consults with clients with an intention to better their financial situations.
Accounting consultants are persons with high subject matter expertise in preparing financial reports, pro-forma financial statements and reports. They also analyze, interpret and evaluate financial statements and reports for various regulatory and statutory authorities and internal management of organizations. Accounting consultants can help a business with all of its financial needs.
California Licensing and Disciplinary Actions:
In the United States most of the states have statutes that provide for a state board of accountancy or a board of certified public accountants. Statutes may require the registration of accountants and accounting firms with the state board of accountancy.
The National Association of State Boards of Accountancy (NASBA) serves as a forum for the state boards of accountancy. NASBA’s stated mission is to enhance the effectiveness of state boards of accountancy.
The American Institute of Certified Public Accountants (AICPA) is the certified professional association of Certified Public Accountants (CPAs) in the U.S. AICPA deals with rule making, standard setting and legislative bodies, state CPA societies, and other professional organizations.
A state has the power to revoke the license which grants the right to practice public accountancy. A person cannot acquire a vested right to practice accountancy by his/her registration certificate. Murrill v. State Board of Accountancy, etc., 97 Cal. App. 2d 709 (Cal. App. 1950). However, normally the disciplinary charges before a licensing board must be established by clear and convincing evidence.
A state that issues certificates or licenses granting the right to practice public accountancy carries the corresponding power to revoke such right, or to prescribe the terms and conditions upon which it can be forfeited. Lehmann v. State Board of Public Accountancy, 263 U.S. 394 (U.S. 1923).
Statutes can provide for revocation or cancellation of certificates for the following reasons:
- Unprofessional conduct in violation of an applicable accounting law,
- Acts discreditable to the profession,
- Dishonesty in the practice of public accounting.
Other disciplinary actions include suspension and public censure depending upon the circumstances. However, the hearing by a state board of accountancy in disciplinary proceedings for accountants must not violate the due process rights. Disciplinary charges before a licensing board must often be established by clear and convincing evidence.
California defines the profession as follows:
California Business & Professions Code § 5033 provides that
“Certified public accountant” means any person who has received from the board a certificate of certified public accountant and who holds a valid permit to practice under the provisions of the chapter. “Public accountant” means any person who has registered with the board as a public accountant and who holds a valid permit for the practice of public accountancy.
Except as expressly permitted by this section, a person engaged in the practice of public accountancy shall not pay a fee or commission to obtain a client or accept a fee or commission for referring a client to the products or services of a third party.
Disciplinary actions in California:
Pursuant to Cal Bus & Prof Code § 5061, after notice and hearing the board may revoke, suspend, or refuse to renew any permit or certificate granted under Article 4 (commencing with Section 5070) and Article 5 (commencing with Section 5080), or may censure the holder of that permit or certificate for unprofessional conduct that includes, but is not limited to, one or any combination of the following causes:
- Conviction of any crime substantially related to the qualifications, functions and duties of a certified public accountant or a public accountant.
- A violation of Section 478, 498, or 499 dealing with false statements or omissions in the application for a license, in obtaining a certificate as a certified public accountant, in obtaining registration under this chapter, or in obtaining a permit to practice public accountancy under this chapter.
- Dishonesty, fraud, gross negligence, or repeated negligent acts committed in the same or different engagements, for the same or different clients, or any combination of engagements or clients, each resulting in a violation of applicable professional standards that indicate a lack of competency in the practice of public accountancy or in the performance of the bookkeeping operations described in Section 5052.
- Cancellation, revocation, or suspension of a certificate or other authority to practice as a certified public accountant or a public accountant, refusal to renew the certificate or other authority to practice as a certified public accountant or a public accountant, or any other discipline by any other state or foreign country.
- Suspension or revocation of the right to practice before any governmental body or agency.
- Fiscal dishonesty or breach of fiduciary responsibility of any kind.
Cal Bus & Prof Code § 5115 provides that any certified public accountant or public accountant whose certificate, registration, or permit has been revoked or suspended shall upon request of the board relinquish his/her certificate or permit. However, upon the expiration of the period of suspension, the board shall immediately return any suspended certificate or permit which has been relinquished.
A person whose license has been revoked or surrendered may petition the board for reinstatement or reduction of penalty after a period of not less than one year has elapsed from the effective date of the decision or from the date of the denial of a similar petition, unless a longer period, not to exceed three years, is specified by the board in any decision revoking the license, accepting the surrender of the license, or denying reinstatement of the license.
A person whose license has not been revoked or surrendered but who has been disciplined by imposition of a suspension or otherwise disciplined may petition the board for reinstatement or reduction of penalty after a period of not less than one year has elapsed from the effective date of the decision.
Cal Bus & Prof Code § 5104 provides that the board shall give notice to the Attorney General of the filing of the petition and the Attorney General and the petitioner shall be afforded an opportunity to present either oral or written argument before the board itself. The board itself shall rule on the petition, and the decision shall include the reasons therefore and any terms and conditions that the board reasonably deems appropriate to impose as a condition of reinstatement or reduction of penalty, including, but not limited to, restrictions on the petitioner’s scope of professional practice.
Negligence of Accountants:
An accountant who is negligent in performing duties is liable for both tort and breach of contract causes of action.
In Cumis Ins. Soc’y, Inc. v. Tooke, 293 A.D.2d 794 (N.Y. App. Div. 3d Dep’t 2002), the court held that accounting malpractice or professional negligence contemplates a failure to exercise due care and proof of a material deviation from the recognized and accepted professional standards for accountants and auditors, generally measured by GAAP and GAAS promulgated by the American Institute of Certified Public Accountants, which proximately causes damage to plaintiff. Earlier, a claim for breach of contract against accountants for failure to perform duties in accordance with generally accepted accounting principles stated only a claim in tort rather than in contract. However, in Lincoln Grain, Inc. v. Coopers & Lybrand, 216 Neb. 433 (Neb. 1984), the court held that a negligent failure to observe reasonable care and competence is a tort as well as a breach of contract.
Once the plaintiff in an accounting malpractice case establishes a duty based on an accountant-client contract, the plaintiff has the obligation to establish: (1) the accepted standard of accounting care or practice; (2) that the accountant’s conduct departed from that standard; and (3) that the accountant’s conduct was the legal cause of the injuries suffered. When a plaintiff alleges a special relationship such as accountant client relationship as the basis for the defendant’s duty, the scope of that duty may be defined or limited by common-law principles such as reasonable care and foreseeability of harm. Mayorga v. Costco Wholesale Corp., 2007 U.S. Dist. LEXIS 5484 (D. Or. Jan. 24, 2007).
Conclusion:
When commencing or operating a business, or when dealing with the complexities of a Trust or estate, it is as important to have good accounting advice as good legal advice. This is particularly true when international aspects are involved. Your attorney should be able to provide to you a list of accountants that he or she uses on a regular basis and who specialize in the various types of business fields or jurisdictions vital to your needs.
But, as with attorneys, the important lesson to learn is that one should get the advice before an error is made. You want your accountant on board before that frightening letter arrives from the Internal Revenue Service.