professional liabilities Custom Essay

You have finally graduated with a Masters in Accounting degree from the prestigious FIU School of Accounting, and you have recently obtained your CPA license. Although you were recruited by the “Big Four,” you decide to open your own CPA firm in South Beach. As luck would have it, you are immediately engaged by Cardozo & Co., Inc., a fast-growing, privately-held service firm that wants to “go public.” Cardozo & Co. is incorporated in Massachusetts, but it maintains its corporate headquarters and principal place of business in Miami, Florida.
The financial statements that you audited and certified for the company were included in the “expertise” portion of the registration statement filed with the SEC, and in the prospectus that was disseminated to the public, before the initial public offering (IPO). The financials included several inaccuracies, such as overstating the net sales and net profits for the current year, which you failed to detect. You did, however, uncover several “irregular” entries, which you suspected to be bribes to foreign entities, but you took no action regarding this information. The IPO was a huge success for the company.
During the course of your engagement (following the IPO), you were asked by the firm’s President to render tax advice on several company matters, one of which concerns tax shelters in the Cayman Islands, and you complied with this request. Several months later, it was announced that Cardozo & Co. would merge with another large, public company, thereby increasing the value of its stock tremendously. You prepared the financials for the proxy statements which were filed with the SEC in anticipation of the merger. Those documents found their way into the hands of Prosser Bank (without your knowledge); that bank made a loan to Cardozo & Co. based on your assessment of the company’s financial position. Before the merger was finalized, however, it was discovered that through an intricate embezzlement scheme, the company’s president had siphoned off substantial sums of money from Cardozo & Co., (which now support him in a luxurious lifestyle in the South Pacific), while still making the company look profitable. You, however, had no indication of this fraudulent activity during the course of your engagement. Needless to say, the merger deal collapsed, and the company is now bordering on insolvency; Prosser Bank was unable to collect on the loan proceeds.
To your dismay, you are informed that the company is under investigation by the United States Department of Justice (DOJ), the Internal Revenue Service (IRS), the Securities Exchange Commission (SEC), as well as the Florida Attorney General and the Florida Department of Revenue. Due to the possibility of pending litigation, the company’s new president has instructed you not to obey any summons or subpoenas issued by these governmental entities to produce information in your possession relating to Cardozo & Co., most notably, your work papers. At the same time, disgruntled investors—some of whom purchased shares of Cardozo & Co. at the IPO, others who purchases shares in anticipation of the proposed merger—have filed a private lawsuit against you. And lastly, Prosser Bank is suing you for their losses.
In desperation, you are seriously contemplating giving up your CPA license to become a lawyer! Before you do so, however, you need to evaluate the situation more closely. What common law liability, if any, do you have? What statutory liability, if any, do you have? Can you assert accountant-client privilege in any possible litigation scenario? Discuss fully.