68 MODULE 21 PROFESSIONAL RESPONSIBILITIES

4. Code of Professional Conduct prohibits disclosure of confidential client data

unless
(1) Client consents
(a) Note that if client is a partnership, each partner is actually a client and therefore each must
give consent
(2) To comply with GAAS and GAAP
(3) To comply with enforceable subpoena (e.g., courts where privilege not recognized)
(4) Quality review under AICPA authorization
(5) Resp~nding to AlCPA or state trial board
5. US Supreme Court has held that tax accrual files are not protected by accountant-client privilege
6. Illegal acts by clients
7. Situations in which there may be a duty to notify parties outside the
client
(1) Form 8- K disclosures (change of auditors)
(2) Disclosure to successor auditor (AU315)
(3) Disclosure in response to subpoena . I

(4) Disclosure to funding agency for entities receiving governmental financial assistance
8. CPA certificates are issued under state (not federal) jurisdiction
9. Acts of employees
a. Accountant is liable for acts of employees in the course of employment
EXAMPLE: XYZ, a partnership of CPAs, hires Y to help perform an audit. Y is negligent in the audit, causing the
client damage. The partners cannot escape liability by showing they did not perform the negligent act.
b. Insurance typically used to cover such losses
10. Duty to perform audit is not delegable because it is contract for personal services unless client
agrees
to delegation
11.Generally, basis of relationship of accountant to hislher client is that of independent contractor
12. Insurance
13. Accountants' malpractice insurance covers their negligence
14. Fidelity bond protects client from accountant's fraud
15. Client's insurance company is subrogated to client's rights (i.e., has same rights of recovery
of
loss against accountant that client had)
16. Portions of debts incurred in violation of securities laws not covered by insurance are not
dis-
chargeable in bankruptcy
17. Reliance by auditor on other auditor's work
18. Principal auditor still liable for all work unless audit report clearly indicates divided
responsibility
19. Cannot rely on unaudited data; must disclaim or qualify opinion
20. Subsequent events and subsequent discovery
21. Generally not liable on audit report for effect of events subsequent to last day of
fieldwork
(1) Unless report is dated as of the subsequent event
(2) Liability extends to effective date of registration for reports filed with SEC
22. Liable if subsequently discovered facts that existed at report date indicate statements were
mis-
leading unless
(1) Immediate investigation is conducted, and
(2) Prompt revision of statements is possible, or
(3) SEC and persons known to be relying on statements are notified by client or CPA
23. Accountant liable if s/he makes assurances that there are no material changes after fieldwork or
re-
port material changes
date (1) Therefore accountant-shouldperform sufficient audit procedures before giving this assurance
when
in 24. Liability from preparation of unaudited financial
there statements
are a. Financial statements are unaudited if