The Accountant/Attorney Liability Reporter: March 2009
Inside this Issue
New York Accounting Law Expands Oversight
By Cheryl A. Waterhouse, Esq.
As the country attempts to deal with a financial crisis, New York Governor David Paterson recently signed into law a bill designed to enhance public protection by ensuring greater accountability for CPAs. The law, which clarifies the current functions of accounting professionals, mandates more expansive regulation of the profession.
First Circuit Recognizes Applicability of Work-Product Doctrine to Tax Accrual Workpapers
By John B. Connarton, Jr., P.C.
In a decision issued by the United States Court of Appeals for the First Circuit, the work-product doctrine, protecting documents from disclosure to an adversary, was held to apply to tax accrual work papers prepared by Textron, Inc. and sought by the IRS by way of an investigative subpoena. United States v. Textron, Inc., No. 07-2631 WL 136752 (1st Cir. January 21, 2009).
Document Retention for Accountants
By Justin M. Jagher, Esq.
Accountants have a distinctly different job than 25 years ago, when computers were still “new-fangled” and “e-filing” had not yet begun. It is important for accountants and their firms to remain up-to-date with technology and the legal ramifications of a constantly evolving world. Accountants must be aware of the rules pertaining to document retention and privacy; it is easier now more than ever to obtain information, and accountants must be able to navigate through the various rules and regulations to protect themselves and their clients.
Accountant Liability When a Corporation Commits Fraud
By Cheryl A. Waterhouse, Esq. & Eliana Nader
In a case in which all parties agree that accounting fraud was orchestrated and concealed by senior management of a corporation, should the corporation’s accountant be held liable to the unsecured creditors of the corporation in bankruptcy? A federal court in Pennsylvania found that senior management’s wrongful acts were imputed to the corporation and, because the corporation was substantially liable for its own injury, the claims against the accountant were barred. The Court of Appeals for the Third Circuit has asked Pennsylvania’s highest court for guidance on this issue before ruling on the appeal of that decision. The answers to the questions the federal court is asking could broaden the liability accountants have in cases in which their clients participate in fraud.
Law Firm Can Impose Financial Disincentives on Withdrawing Partners
By Cheryl A. Waterhouse, Esq.
A law firm’s partnership agreement, which imposes financial impediments on all partners who leave the firm voluntarily, does not violate public policy considerations protecting clients’ rights to choice of counsel, as set forth in the Massachusetts Rules of Professional Conduct. Pierce v. Morrison Mahoney LLP, 452 Mass. 718 (2008). Massachusetts’ highest court, which had previously held that a prior provision of the same firm’s partnership agreement did violate public policy because it imposed adverse consequences only on partners who left voluntarily and competed with the law firm, determined that, by treating alike all partners who leave the firm voluntarily, the partnership agreement did not limit client choice and thus did not violate public policy.
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