Module 23: Professional and Legal Responsibilities


This module covers the general standards of care and ethics that must be followed by CPAs. CPAs are authorized to practice by the various state boards of accountancy. They must follow the rules of these bodies which generally follow the AICPA Code of Professional Conduct. The AICPA and the state societies cooperate on enforcing the ethics of the profession.

A. Regulation of the Profession

B. Disciplinary Systems of the Profession and Regulatory Bodies

C. Accountant’s Legal Liabilities

D. Legal Considerations Affecting the Accountant’s Responsibility

E. Criminal Liability

F. Responsibilities of Auditors under Private Securities Litigation Reform Act

G. Responsibilities under Sarbanes-Oxley Act

H. Additional Statutory Liability Against Accountants

I. Responsibilities of Tax Return Preparers

Key Terms

Multiple-Choice Questions

Multiple-Choice Answers and Explanations


Simulation Solutions

Accountants’ civil liability arises primarily from contract law, the law of negligence, fraud, the Securities Act of 1933, and the Securities Exchange Act of 1934. The first three are common law and largely judge-made law, whereas the latter two are federal statutory law.

The agreement between an accountant and his/her client is generally set out in a carefully drafted engagement letter. Additionally, the accountant has a duty to conduct his/her work with the same reasonable care as an average accountant. This duty defines the ...

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