What is Accountant Responsibility?
Accountant responsibility is the ethical responsibility an accountant has to those who rely on their work. According to the American Institute of Certified Public Accountants (AICPA), accountants have a duty to serve the public interest and uphold the public trust in the profession. An accountant has a responsibility to his clients, his company's managers, investors, and creditors, as well as to outside regulatory bodies. Accountants are responsible for the validity of the financial statements they work on, and they must perform their duties following all applicable principles, standards, and laws.
Key Takeaways
- Accountant responsibility is the ethical responsibility an accountant has to those who rely on their work.
- An accountant's responsibility may vary depending on the industry and type of accounting, auditing, or tax preparation being performed.
- All accountants must perform their duties following all applicable principles, standards, and laws.
Understanding Accountant Responsibility
Accountant responsibility varies slightly based on the accountant's relationship with the tax filer or business in question. Independent accountants with some clients see confidential information, ranging from personal Social Security numbers to business sales data, and must observe accountant-client privilege. They cannot share private personal or business data with competitors or others.
Accountants who work for accounting firms also have a responsibility to keep information private, but they also have a responsibility to their firm. Namely, they must accurately track their hours and tasks completed. For example, an accountant performing an audit should only record items he has actually completed, rather than pretending he has completed items he has not in order to speed up the process or bolster his logged hours.
If an accountant works directly for a business, as an in-house accountant, he has access to information many others in the company do not, ranging from payroll figures to news about staff layoffs, and he also has to treat this information discretely. In addition to having a responsibility to the people who work at the company, in-house accountants are also responsible to stockholders and creditors. If accountants do not uphold their responsibilities, it can have a broad effect on the accounting industry and even the financial markets.
Accountant Responsibility and the Internal Revenue Service
Although accountants have a great deal of responsibility to their clients, if the Internal Revenue Service finds an error in an individual's tax return, it does not hold the tax preparer or accountant responsible. Rather, the IRS adjusts the return and holds the taxpayer responsible for the additional tax, fees, and penalties. However, an individual who has been wronged by an accountant's misconduct can bring a claim of negligence against the accountant based on the fact the accountant breached his duty to the client and caused personal or financial damages.
The IRS also accepts complaints about tax return preparers who have committed fraud, and anyone with an issue may submit a complaint using Form 14157, Complaint: Tax Return Preparer. In-house accountants who cook the books or purposefully include erroneous data in their company's tax returns or accounting documents are responsible for misconduct and may even be criminally liable.
Accountant Responsibility and External Audits
According to the Public Company Accounting Oversight Board (PCAOB), accountants performing external audits have the responsibility to obtain reasonable assurance about whether the client's financial statements are free of material misstatement, whether caused by error or fraud. The Sarbanes-Oxley Act of 2002 (SOX) added new audit responsibilities relating to fraud. External auditors now have to certify that a client's internal controls are adequate in addition to expressing an opinion on the financial statements.
What Is the Public Company Accounting Oversight Board (PCAOB)?
The Public Company Accounting Oversight Board (PCAOB) is a non-profit organization that regulates auditors of publicly traded companies. The purpose of PCAOB is to minimize audit risk. In particular, the PCAOB oversees the audits of public companies, brokers, and dealers registered with the U.S. Securities and Exchange Commission (SEC)
Key Takeaways:
- The Public Company Accounting Oversight Board (PCAOB) is a non-profit organization that regulates audits of publicly traded companies to minimize audit risk.
- The PCAOB was established at the same time as the Sarbanes-Oxley Act of 2002 to address the accounting scandals of the late 1990s.
- The board protects investors and other stakeholders of public companies by ensuring that auditors follow strict guidelines.
Understanding the Public Company Accounting Oversight Board
The Public Company Accounting Oversight Board (PCAOB) was established with the passage of the Sarbanes-Oxley Act of 2002. The act was passed in response to various accounting scandals of the late 1990s. The board protects investors and other stakeholders of public companies by ensuring that the auditor of a company's financial statements has followed a set of strict guidelines.
The PCAOB is overseen by the Securities and Exchange Commission and, since 2010, the PCAOB has overseen the audits of SEC-registered brokers and dealers.
PCAOB Advisory Groups
The PCAOB has two advisory groups: the Standing Advisory Group and the Investor Advisory Group. The role of these two groups is to provide advice and insight to the Board.
The Standing Advisory Group meets semi-annually to discuss data and technology, cybersecurity, corporate culture, communications on PCAOB standards, the governance and leadership of quality control systems, current or emerging issues affecting audits or auditors, and implementation of the new auditor’s report.
The Investor Advisory Group meets once a year to discuss the group's strategic plan, quality control standards, implementation of the new auditor’s report, and implementation of Form AP. The PCAOB Board has developed a five-step strategic plan, which is laid out in its annual report. The five-step plan is composed of the following:
- Drive improvement in the quality of audit services through a combination of prevention, detection, deterrence, and remediation.
- Anticipate and respond to the changing environment, including emerging technologies and related risks and opportunities.
- Enhance transparency and accessibility through proactive stakeholder engagement.
- Pursue operational excellence through efficient and effective use of our resources, information, and technology.
- Develop, empower, and reward our people to achieve our shared goals.
1,709
The number of PCAOB-registered firms in the United States as of 2021, according to the PCAOB annual report.
The PCAOB Today
Firms that audit public companies, brokers, and dealers must register with the PCAOB. Registered firms are subject to inspection of the audits they have performed. PCAOB is involved in setting standards aimed at improving the reliability of audits and may also enforce standards by imposing penalties for infractions.
In 2020, PCAOB sanctioned 13 firms and 18 individuals resulting from 219 audit inspections. In 2021, those numbers were 14 firms and 15 individuals sanctioned following 191 inspections.