Question

What would be the key to determining if the accounting firm could be held liable for that violation of federal law

Answer 1

Accounting firms are responsible for applying Generally Accepted Accounting Principles (GAAPs) issued by Financial Accounting Standard Board (FASB) for preparation and presentation of financial statements of any organisation. There are guidelines and principles in GAAPs relating to preparation and presentation of financial statements like Principles of Consistency, Regularity, Continuity, and Materiality etc. However, there are various issues as well in preparation and presentation of financial statements as per the financial reporting framework provided by the responsible authority of different countries like comparative analysis, consolidation of financial statement, etc.

Therefore, International Financial Reporting Standards (IFRS) also issued by International Accounting Standard Board (ISB) are the common financial reporting guidelines and framework so that the above issues can be resolved and an organisation can connect with foreign markets and makes financial statements more accurate and fair between countries.

Further, it is the responsibility of accountant to follow above standards in order to avoid any risk and misstatement of financial statements and the accounting firm is also responsible for any fraud and error in financial statements that may affect or mislead the investors of the organisation whose financial statements are account for by the accounting firm. There is various federal laws in which accounting firm is also liable for the fraud & error in financial statements and they may be liable either to clients for breach of contract for breach of contract, loss & cause to clients or liable to third party for any fraud of accounting firm because of privity of contract is also require regarding third parties.