Government Regulation and the Accountants

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Introduction

For any business that is willing to keep climbing the ladder of success in the marketplace, this particular business will have to ensure that they have a good accountant that is taking care of all their financial needs and maintaining clear records of the financial statement and financial position. This particular person who is a professional working in the accounts department they will assist in the arrangements of the companies establish the interior dealings and there and put in place the right controls that will help the firm to develop. They are also in the business to evaluate the business achievements and at the same time companies section that is productive.

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Client

Their other duties are to the owners of the business to assess the tax liabilities so that they can be in a position to conform to the regulatory mandates that are required by the government in the business. A good and competent accountant is said to have a minimum education level of not less than a four-year course in the field of accounts, business management auditing, taxation, and finance. Professionally an accountant should implement due care closely following conventional and standards values so that they can b in a position to present a true and fair view of the financial place of an entity. Whoever takes up this responsibility owes to the company and the owners these and more ethical and expert obligations so that they can manage and protects their investment and at the same time balance the credits and vary the taxation authorities.

As always the client in any kind of business comes first, their needs are to be observed and met in any case. As an accountant, all the financial needs in regards to what the customer wants should be attended to. The professional should listen to the needs of the client, compile them together with the little information, of bits and pieces, they have gained, and come up with a resolution that is professional and that which will suit the needs of the client (Gottschall, 2009). The major challenge with dealing with a client when it comes to the accounts department is the computing of earlier accounts. This is where professional ethics are applied by being patient in listening to their needs and also weighing what they are expecting.

An accountant should play the major role of an advisor for all the financial crises as they provide basic accounting services. The contribution of their knowledge into the business will aid the client to be in a better position of understanding of all the endeavors of the business in the money matters. The good relationship that is created between the client and the accountant will aid the variation on the performance of the account and their contribution to the organization. Obtaining enough information as an accountant on the particular job intended to be done is the first step so that you can be in a position to provide quality information with regards to what the client or the company needs (Heinemann, 2006). Studies have over time indicated that the competency and performance will not only rely on the good decisions made by the board but in a large way the performance of an accountant. Any business started has one common goal to minimize cost, reduce expenses and at the same time increase their revenue. This is where the account skills are important, one that is in the business to help their client maintain their financial books and advice them on the relevant ways to maintain a graph of proceeds.

Third-Party

The third party is a term regularly used to refer to an individual or an entity that is not directly involved in the running of the business but has a relationship of some kind into running the business. Their involvement in the business is crucial and of great importance, since they fund in the completion of the business cycle. It has been increasingly noted that most businesses are involving a third party in their business so that they can expand and grow (Gottschall, 2009). These third parties in any case come in the form of creditors, shareholders among many others. Their involvement in the business has been of benefit since they bring in the extra money in the business. A big part of the company’s growth in many companies has all been credited to the third party since they participate in the capital injection. Their involvement in the business is still supposed to be accounted for by the accountant. Their profits and losses and volumes of their money float are data based by the accountant.

There are several duties that are precisely defined by the laws of the land as well as the principles of the company. The accountant is legible for taking care of the books of accounts with reference to the involvement of the third party in the company. Though they cannot be held liable for any kind of losses incurred they have a duty to the third party to give a correct statement of performance. The accountant in charge with matters relating to the third party is meant to be in opposition to giving a detailed report and in case to give explanations on any arrived figure (Heinemann, 2006). They are supposed to be the man overseeing the third parties’ money float and also protect the money from fraud. Professionally the accountant in any case should not participate in any kind of intent to deceive the third party with intentions of stealing from them, or negligence that will lead to fraud rather they have a duty to the customer to protect their investment through proper finance statement.

The knowledge and skills of an accountant are the basic principles to involve a third party in the business since they can manage their proceedings relatively well and safe. The third party as they commit themselves to any business their dependent is on the performance of the business and the good accounting that follows. Their trust is seen to be increasingly significant to any business that has a good accounting policy since they are satisfied and their reliance on financial statements and position is easily accessible.

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Government

All businesses no matter how small they are, responded to the government as they answer to the relevant ministries either for taxation or business permits. As the company continues to increase and develop and grow their red tapes and other necessities become wider and more complicated. Every business especially those that have a public entity, their accountant has a duty to give their financial reports annually. Their shareholders and partners will also need the books of financial position at the end of every active financial year (Spector, 2005). The government accountants closely partner with the internal auditors of a company together with the companies accountant so that they can verify and equally validate the work and entries of the books of accounts. Their duties will also involve the confirmation of the accountancy policies in the company as they authenticate that the procedure in the accountancy department is operating effectively as it should. They will also look into the matter of the organization’s policy and their operations and whether they are meeting the government’s mandate in practicing accounts. Their main focus as the accountant, which is representing the needs of the government, is in the control of the business around the financial reporting procedures to control all errors and omission of data. They undertake a detailed procedure into the book of accounts trying to follow steps of the posting process to reach the figure given. This is an effective procedure introduced by the government to enable the business to run effective trade that is free from fraud and errors.

search the Internet (www.sec.gov is a great resource) for actions that have been brought against accountants or accounting firms. Select an action/claim that relates to each of the three parties discussed in part 1 of the paper, and summarize the details. For each of the three actions/claims, identify which act or law was broken by the accountant and how.

Solution

Today accountants have been faced with an ever-increasing level of performance checking and responsibility to their clients as well as the government, especially with the financial information that has been given to them by their clients and society in general. The recent legal actions that have been reported out of accountant negligence or fraud alleges that these accountants have been responsible for the problems that have been experienced by savings and loans institutions, companies that have experienced bankruptcy, as well as overseas companies that have failed to receive their funds after the actions of accountants. According to a 2009 report prepared by Johnson and Higgins, the numbers of these financial losses have continuously tended to increase, with the amounts of money lost continuing to escalate.

The pecuniary damages that have been fined as a result of the negligence of accountants have also continued to increase. For example, in 2009, an Arizona court was forced to charge a $338 million fine against the Big Six Accounting Firm that is located in the same state, filled by the victim of fraud, Resolution Trust Corporation. This is with regards to alleged negligence that was committed by the accounting firm after it failed to make and protect the savings made by the Finance Trust Institution.

According to Dan A. Simunic, the chairman and member of the nationally celebrated Accounting subdivision of the University of British Columbia, the only way to administer the risk that is connected with the business, and one which is specifically introduced by accountants, is to continuously assess and appraise the relationships that subsist with the contemporary clients as well as considering the impacts that the probable clients have towards the practice of accountancy and the law. According to the American Institute of Certified Public Accountants (AICPA), legal liability against accountants can be extended in cases where there are:

  • Professional malpractice
  • Unfair competing actions
  • Administrative proceedings that have been brought before the Securities and Exchange Commission
  • Securities fraud class action suits that involve the accountant, the accounting firm, and the client

Limited Liability Partnership (LLP)

This LLP structure has been used by accountants, with regards to the fact that they cannot act as accountants or auditors to another company, which has not legally been permitted to act as a company. The limited liability partnership (LLP) is a term that is used in accounting and legal fields to depict a partnership that is characterized by limited liability (Parasa and Kwansa, 2002). This affiliation, therefore, depicts the distinctiveness of the partnership or a corporation, where one of the associates is not legally responsible for the personal or professional misconduct, negligence, or carelessness of a different associate. This means that the partners have some form of limited liability towards the actions and finances of the corporation, with the partners having the right to manage their businesses directly.

In the case of Mattco Forge against Ernst & Young, the Californian court found the accounting firm, Ernst & Young liable of malpractice, acting in its capacity to support the provider and ordered it to pay a sum of $42 Million as compensatory and pecuniary damages. This marks the first time that an accounting firm has been held liable and severely punished for negligence, fraud, and lack of support for its clients. The past has, however, been marked with many cases of auditor malpractice and negligence. This case has greatly set the precedence towards the limits of protection that is accorded to clients from actions of their accountants, calling on the attention of all these professionals towards the liability that is related to litigation advisory services.

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The Government and Tax Fraud

Only recently, the government, through the IRS, has ended the special voluntary disclosure program that has been created for investors who might wish to store their money overseas, with accountants failing to declare the full worth of this amount. However, the traditional voluntary disclosure of this information still remains. This has thus left huge legal questions for accountants who have not declared their wealth, with the practical question being what is to be expected. Investors and other banking corporations are thus at the risk of the enforcement of this act, especially after the 2009 prosecution of the Swiss banking giant, UBS banking corporation.

By invoking the Bank Secrecy Act, the government has been able to use this statute as a potent weapon to recall the bank statement details of foreign investors. This has potentially led to the open up of severe financial penalties, especially in cases where accountants have failed to openly disclose the amounts that are deposited into offshore accounts. This Act has been imposed on a wide range of businesses, associating an equally wide range of anti-money laundering necessities on the banks and other financial institutions.

Conclude your paper with a discussion of priority. Accountants are liable to a variety of individuals/groups: clients, government, shareholders, community, etc. What or who should take priority? Obviously, accountants have a responsibility to obey the law, but where does priority lie beyond the rules and regulations? For example, consider a situation in which a company has organized their books in a way that does not technically break the law, but that could be confusing to investors/shareholders. A scenario such as this involves each of the three major parties to which the accountant is liable. Find a real-life example to support your conclusion.

Solution

Accountants are commonly faced with the age-old question of who to afford priorities to, the client, the government, or the third-party agency (Lawson, 1991). According, a deed of trust is normally assigned between these industry players, where the client is simultaneously registered as the vendor of the various services that are to be supplied by the accountant, while the third-party agency is referred to as the intermediary of overseeing the passing of these services (Rubinfeld and Hemingway, 2009). However, certain special circumstances may negate this situation, making additional requirements and considerations necessary, before the priority of services of the accountant are accorded. This is a situation of the analysis of priority between the client, the third party, and the governmental agencies that might be involved in the transaction.

Just recently, the Colorado Supreme Court was involved in the case of ABY Holding Company v. Bank of Telluride in which the accountant was charged with neglecting the priority of the client and awarding this priority to the third-party mortgaging company that was charged with the sale of the corporate building. The purchase contract that had been awarded between the parties had two simple checkboxes that required to be marked, either in agreement or disagreement (Brownmiller, 2005). There were, however, no designations with regards to the purchase contract that had been drawn up, using the normal priorities of suing the client first. Additionally, there was to be extensive discussions between the accountants on both ends of the client, the purchaser, and the third party to iron out any priority issues that might have arisen from the proceedings (Card, 1996). The title company that housed the accountants was designated as the one recording the proceedings of the transactions as the seller of the deed.

However, when a failure to pay occurred, ABY Holdings Company declared the priority of the bank as the third party and a court-handled proceeding ensued. In their opinion, the court held that “therefore, even a third party who loans money to the purchaser that is applied to the purchase, and who takes back a mortgage on the purchased property, cannot acquire rights to the property from the purchaser unencumbered by the vendor’s mortgage, regardless of the order in which the documents are signed” (Boehm, 1999).

ABY Holdings Company has thence been faced with underwriting decisions that have ensued from its violation of priority of the client, giving this priority to the third party mortgage company. However, the company has maintained that it acted in the best interest of the mortgage company and the bank since there was a simultaneous instance of the occurrence of the deed of trust. This situation has necessitated that the company makes additional agent and accountant requirements before any legal proceedings are being presented against it.

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The court made a detailed ruling on the issue, with regards to the concepts and confines of the law, considering the Restatement of the property law with regards to a third-party and which supports the priority of a seller or vendor who seeks to purchase a good from that of the third-party (Schmetterer, 2007). These findings are thereby consistent with equitable arguments that are present in most contracts that seek to protect the rights and interests of the client from violation by the accountant and the third party. Additionally, the rights of the client are given more priority to those of the state, unless it is a matter of national security, giving the client the right and capability to protect their financial as well as physical interests from violation by either the government or the third party proxies.

Conclusion

Though it is common law that the needs of the third-party as well as those of the government are favored in most legal actions, vendors, sellers, and other clients of accountants and accounting firms are given far more priority: with some states like Montana, Idaho and South Dakota going the extra mile to adopt and promulgate certain bylaws and statues that are designed to protect the interests of the client from violation by the accountants. In most of the modern and post-modern circumstances, these statutes and regulations have gone unrecorded and undetected by those who feel that they have no right over those of the state and the third-party operatives. Their application as well as coverage is based on the equitable distribution of resources and protecting the rights of the underdog with regards to the deed of trust.

References

Boehm, C. (1999). Hierarchy in the forest: The evolution of egalitarian behavior. Cambridge, MA: Harvard University Press.

Brownmiller, S. (2005). Accounts and accountants: the organization theory. New York, NY; Simon and Schuster.

Card, C. (1996). Accountants and the way they change businesses. New York, NY: Oxford University Press.

Gottschall, J. (2009). Accountants and the theory of accounts. The Journal of Accounts Research. Research Library Core, 129-136.

Heinemann, L. (2006). Organizational theory. New York, NY: McGraw-Hill/Irwin Publishing Co.

Lawson, J.E. (1991). Third-party agents and the clients. Mahwah: University of Iowa Press.

Parasa, H.G. and Kwansa, F. (eds.) (2002). Quick Service Restaurants, Franchising and Multi-Unit Chain. Haworth Press.

Rubinfeld, A. & Hemingway, C. (2009). Built for Growth. San Francisco, SF: Wharton School Publishing.

Schmetterer, B. (2007). Leap: A Revolution in Creative Business Strategy. New York, NY: John Wiley and Sons.

Spector, R (2005). Category Killers: The Retail Revolution and Its Impact on Consumer. London: Harvard Business School Press.

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