Question

Eagle has an accountant, John Steinbell, prepare its financial statements and to prepare the tax returns. While the financial statement show a profit for the company, John takes a very aggressive stance in allowing expense deductions from income, resulting in the company showing a significant loss on the tax returns for two years. After Eagle is audited by the Internal Revenue Service, the IRS does not allow many of the deductions and charges Eagle not only for the tax owed but also significant penalties. The Eagle owners are furious with their accountant. Do they have a cause of action against him? Please explain.

Answer 1

Yes, the company has cause of actions or facts that can be taken against the accountant.

As the accountant was found indulged in the fraudelant activity, the company has all the rights to charge him penalty or punish as per the rules of the company.

The company doing the auditing, found the accountant guilty and has full facts that showed his manipulations being done by him.

The auditing company could present those to the management of Eagle company. This would prove accountant being wrong and indulged in fraud committing

This thus fact brought forward by the auditing company brings the casuse of action taken against the accountant.

Auditing firms have their sole responsibility to check if the books of accounts are correctly and properly maintained or not. If not they should where from the mistake is coming and how to rectify that.

While auditing is being done, the auditor can clearly see that some particular expenses have been made to be deducted. The expenses would have been earlier maintained in the trail balance but in the income statement it must have been found income expenses being reduced.

Now its the proof that by manipulating this expenses have been reduced. This the accountant is at fault

It is very clear that accountant wants to show that the return on income tax they have received is incurring loss.

Doing such activity, is unethically l and company has all the rights to take action against the accountant. As thus activity would lead to having wrong financisfl reports and the outsiders and stakeholders will alsi be made to mislead.

Not only this, it would lead taking wrong decisions by the management that seeks financial reports for making any further decisions.

Taking actions against the accountant would make people realise the value of ethics and no any other employee would dare repeat it in future.

This, taking actions agaimst the guilty is very important for organizations as well as the employees and all stakeholders.

Financial reports are back one of any systen and they need to be backed up by correct results and thus taking correct decisions accordingly.