CPA's and Prescribed Standards
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In 2013, the Journal of Accountancy had a short article regarding independence of fact vs. appearance with respect to CPAs. Certainly, the demise of WorldCom and Enron, among others, heightened the public's awareness of CPAs potentially crossing the line of independence in both fact an appearance. The article specifically mentioned a scenario in which the CPA firm was ultimately sued by a bankruptcy trustee for failing to uncover fraud that led to the company's bankruptcy. When I began working in public accounting, I worked for an extremely conservative group of CPAs and the primary audit partner always had us ask ourselves a number of questions which really made you think about how you would appear in court if this company suffered from financial failure and/or fraudulent financial reporting. Of course, we always approached it in terms of defending ourselves based on the steps we took including calculations of materiality, etc. Do you feel that CPAs should take precautions outside of the prescribed auditing standards?
http://www.journalofaccountancy.com/Issues/2013/Jun/20137656
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Solution Summary
This solution briefly discusses if and when CPA's should take precautions outside of prescribed standards.
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CPA's should definitely take precautions outside of the prescribed auditing standards. While CPA's, in a court of law, would have to show that they complied with standards, would also be held to practical standards. Basically, the judge and jury would attempt to determine if a reasonable person, (meaning an adult ...
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