BUS607 Week 6 Discussion 1 Professional Responsiblity

Professional Responsibility

Attorney-client privilege and accountant-client privilege

Attorney-client privilege is the rule of law in many countries, including United States law, that no lawyer may reveal any confidential information (including the client’s identity) learned during representation (Sisk,2020). This rule is designed to assure an attorney’s complete loyalty to a client - similar to how a physician and psychiatrist have some privileges to be silent in certain cases with their patients or clients. This privilege covers speaking with or corresponding with an attorney.

Accountant-client privilege is a rule of law that prevents a client’s accountant from disclosing or using any confidential or proprietary information they have obtained while giving professional accounting advice to the client. This privilege is intended to protect an accountant against allegations of having divulged a client’s confidential tax or financial information while advising on legal tax matters.

Distinction importance

This is an important distinction because most states have attorney-client privileges and not accountant-client privileges. In most cases, the attorney cannot reveal confidential information to their clients because of that rule, but the accountant can.

The difference between the two privileges is important because one party may have confidential information from a legal point of view, which is beneficial to another person. For example, a client may request his lawyer’s advice to benefit from a donation he has made to a public charity (an act usually exempt from taxes). The client wants to know if the donation qualifies for tax exemption and uses his lawyer’s advice about what, if anything, should be disclosed for tax purposes.

On the other hand, an accountant may have confidential information about a client’s tax liabilities or the client’s financial assets that may be worth a lot of money (such as stocks or real estate). The accountant provides that confidential information to a lawyer who needs to determine whether the client should continue to deduct certain business costs or if there is any “bad debt” that needs to be written off.

In this case, since both parties have confidential information, they need to know, but each can only obtain that information from the other person; it is important for each party not to discuss those matters with others. The client will reveal tax information if he tells his accountant about the donation. If he tells his lawyer about the stock or real estate, he violates the law and is subject to a tax penalty. If the accountant tells his client about the bad debt, he is giving out confidential business information to a customer. He is subject to a lawsuit by the customer (who can prove that he gave that information only to get advice that was never given).

Law restriction on accountant privilege

The law doesn’t provide the same level of privilege for accountants as it does for attorneys because, in both professions, the client must rely on a professional who is supposed to provide information to help make decisions (Lindberg,2017). If an attorney, like any other witness, is forced to put her client’s interests above her own and disclose information that she has sworn to keep a secret, she may be disbarred. In contrast, there are no generally accepted reasons accountants may not keep the information confidential for their clients and themselves. The idea that accountants may be disbarred for doing their best to help their clients would make no sense, even if it were within the legislature’s power.

GAAP/GAAS and IFRS

GAAP is the accounting standard the Financial Accounting Standards Board (FASB) sets. GAAS are the auditing standards of the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA). They are sometimes used interchangeably with GAAP, but they entail different aspects. For example, GAAP is often considered a regulatory standard and GAAS a professional one.

IFRS stands for International Financial Reporting Standards (Sun,2017). These standards were established by international committees sponsored and governed by The International Accounting Standards Board (IASB) and The International Auditing and Assurance Committee (IAAC), created under a 1978 U.N. agreement known as The Joint IASC/IAAC Statement on Auditing Standards No. 13. IASB has issued IFRS as a set of high-quality standards encompassing the concepts of value relevance, economic entities and prudence. IFRS are the only accepted standard for mandatory use by companies worldwide, whether they are listed on a stock exchange or not.

 The main difference between IFRS and US GAAP is that IFRS is an accounting standard and does not include auditing standards for financial statements. Another difference is that IFRS is dynamic and continually upgraded to meet changing worldwide demands. GAAS and GAAP combine accounting and auditing standards and are less likely to be changed. Also, GAAS and GAAP are not mandatory for companies not listed on a stock exchange. In contrast, IFRS is mandatory for all companies that issue financial statements–even if they are not publicly listed. Another difference is that professionals write IFRS without any involvement from government regulators. In contrast, GAAS and GAAP are written by professional accountants with regulatory oversight (Securities and Exchange Commission [SEC] in the U.S.). The theU.S.ottom line is that IFRS is based on transparent, objective rules and principles. In contrast, GAAP and GAAS are based on subjective judgments and opinions.

Reasons why SEC is not using IFRS

SEC is not using IFRS because it has its own set of US-centric accounting principles, so using IFRS would not make sense (Sun,2017). Furthermore, the SEC is looking out for the “little guy,” who might have no idea what IFRS is and have no idea how to use it even if they did. Also, the SEC is not a worldwide regulator, so it makes sense to use the GAAP of their country, especially when their country has a big influence as far as international business is concerned. Lastly, they have already done all the hard work in developinU.S.S. GAAU.S.o why would they want to start from square one- or even from the second square- to switch to IFRS? That would be too much work and a waste of time. Because of this, I think not using IFRS is a good change.

References

Soderstrom, N. S., & Sun, K. J. (2017). IFRS adoption and accounting quality: a review. European accounting review, 16(4), 675-702.

Lindberg, D. P. (2017). The Accountant-Client Privilege: Does it and Should it Survive the Client’s Death? BYU L. Rev., 1271.

Sisk, G. C., & Abbate, P. J. (2020). The Dynamic Attorney-Client Privilege. Geo. J. Legal Ethics, 23, 201.