Question

You are an associate at ABC LLP, a forensic accounting firm. Your company is retained by the Law Firm that is representing a client. The client, the former CFO of the Public Company, is being investigated by the SEC and FBI for running a large accounting fraud scheme and funneling money to his own account after allegedly falsely invoicing sales during 2013 and 2014. The Auditing Firm, which was recently terminated, audited the Public Company and issued opinion letters in connection with the Public Company’s 2013 and 2014 annual reports.

You are just getting up to speed on the case, but the ABC Partner asked for you to help analyze the issue in connection with the Law Firm.

Assume that you are in a meeting with the Law Firm about advising the CFO on options for defending an SEC investigation / FBI investigation. Describe to the group your understanding of:

a. Advice of Counsel Defense

b. Good Faith Defense

c. Fifth Amendment (testimonial and documen

Answer 1

Advice of counsel defence:

The law of the land allows the accused to put forward his / her or its point of view to defend the allegations made against the party. Advice of counsel defence is allowed to be provided under the law without any penalty. Thus, the accounting firm has the legal right to provide advice to its clients without any problem. However, the advice should not be illegal and should not help an organization to avoid payment of income tax in the country. Thus, the accounting firm is well within its right to provide advice to the CFO of the public company to help him defend the allegations levelled against him.

Good faith defence:

An accused is innocent until proven guilty is the basic foundation on which the legal system of the country is standing. An accounting firm can defend the client in good faith until unless there is reasonable prove to the accounting firm that the client is guilty. It is called good faith defence. In this case also the forensic accounting firm has the right to defend the CFO in good faith until unless there is reasonable proof in front of the accounting firm to prove that the CFO is guilty of such frauds.   

Fifth Amendment:

The Fifth Amendment provides that the accounting firm must verify the documents which the accounting firm shall reasonably expect to be available to verify whether the accusations made against the CFO in this case are reasonable or not. Apart from that the Amendment also allows the investigator as well the as the defence counsel to take testimonial of the accused and other parties for coming to a conclusion to any case.