Question

Students will be required to explain, from a legal and ethical perspective, two Federal laws that affect accountant's responsibility and liability. The overall grade will be based on (1) the ability to identify the relevant perspectives (G201).

Answer 1

The Securities and Exchange Commission's civil complaint in the Securities and Exchange Commission v. National Student Marketing Corporation case' has evoked widespread and well justified interest on the part of the two professional groups most intimately involved in the federal securities regulatory scheme: lawyers and accountants. Members of both professions are among the defendants in that suit, and as to both the Commission asserts a duty which both professions may fairly regard as without present legal foundation: a duty to blow the whistle on one's client. It is the purpose of this article to consider that asserted duty as respects public accountants-with an occasional comparative glance at the situation of lawyers. Before addressing this novel question of accountants' responsibilities it may be appropriate to sketch in the general framework of the duties and liabilities of accountants under the federal securities laws within which the question arises. This familiar ground may most usefully be covered for present purposes under four heads: the kinds of factual situations in which questions as to accountants' duties and liabilities may arise; the kinds of liability the accountant may incur for failure to discharge his duties; the particular sources of the accountants' duties enforceable under the securities laws; and the varying degrees of exigence that character such duties.

The Factual Settings

There are four principal factual situations in which questions as to accountants' duties and liabilities may arise. The first and most familiar situation, and the one giving rise to the most extensive responsibility, is that in which the accountant has issued his opinion on financial statements, following an examination in accordance with generally accepted auditing standards.' The opinion is the result and emblem of the public accountant's most exalted role-that of independent auditor-and it is this role which the accountant is principally called upon by the federal securities laws to perform.

OHIO STATE LAW JOURNAL

To the accountant's obligations concerning events occurring subsequent to the date of the financial statements to which his opinion relates, but prior to issuance or reissuance of his opinion which affect the financial state. ments on which he has opinedY It may also be useful to point out that as a practical matter, the question of whether or not to "blow the whistle" will not arise before the end of a chain of events which is likely in most cases to foreclose the question at an earlier point. If an accountant does become aware of a prob. lem, even one relating to matters for which he is not directly responsible, he will of course bring it to the attention of his client.