An Introduction to Accountants' Legal Responsibility
BY WILBERT H. SCHWOTZER Principal, Pittsburgh Office
Presented before the Pittsburgh Chapter, Pennsylvania Institute of Certified Public Accountants — September 1957
Why should you or I be concerned about the legal responsibility of an accountant? Because we do have responsibilities — legal, as well as ethical. Where there is responsibility, there is the possibility of attack by those who think they have been wronged. It behooves you and me to protect ourselves as well as we can from attack — especially from successful attack. The easiest way to protect ourselves is to avoid responsibility — to go out of business. Of course, a better solution, and really the only solution, is to accept our professional responsibility, render service to clients, but study carefully the legal aspects of our work.
At this point let me place a disclaimer in the record. I am a CPA, not a lawyer. I do not profess the ability to interpret the law. When I talk about negligence or fraud, for example, I am not trying to define the terms. In fact, as accountants we should not worry a great deal about the distinction.
A little negligence is too much. As accountants we should let the records of court and disciplinary proceedings serve as case studies which will provide us with examples of the kind of trouble that we can get into.
In 1954 the American Institute of Accountants published a book entitled Accountants' Legal Responsibility by Saul Levy. This book is "must" reading for every accounting practitioner — the staff accountant as well as the principals of the firm. And it is fascinating reading, too. The book contains about 200 pages of excerpts from court opinions in cases involving accountants. The excerpts give some dramatic examples with which you can compare your own practice. As you read the cases, you may stop in the middle of a sentence as you recall a situation in your own experience not unlike the one you are reading about.
How does Saul Levy classify our legal responsibilities?
LIABILITY TO CLIENTS He speaks of liability to clients. "In this branch of the subject, . . . the claims are usually based upon the failure of the auditor to discover defalcations
or other similar irregularities." 1 Do not assume that you have educated each of your clients sufficiently, that each of them is a good fellow,
1 Levy, Accountants' Legal Responsibility, p. 12.