Bill Grant was justified in his refusal to provide the requested work papers to the grand jury since it seemed like a reasonable thing to do in an attempt of protecting the confidentiality of the client. However, this cannot be considered as the best course of action given the situation. Professional standards make it possible for auditors to disclose confidential information if there is a legal action involved as sometimes it is more of an obligation to provide the information. When complying with the subpoena, the firm could minimize its risk by consulting with the client before providing the requested information. The client is likely to request the limitation of the information, and the firm will have an opportunity of reviewing the limitations. Another action would be consulting with the firm’s attorney for the firm to understand its liability with regards to the issue. The firm should also work to get written consent from the parties likely to be affected.
When an employee or partner of an accounting firm is subpoenaed to testify against a client, the firm has the responsibility to apprise the individual regarding their professional and legal responsibilities. This is because during the process the individual will be acting as the representative of the firm while testifying. The firm also ought to prepare the employee or partner in the best way given the legal encounter since it is in the best economic interest of the firm. The firm also has the responsibility of informing the client about the subpoena. In this scope, the firm should take the initiative of explaining to the client of the policies, procedures, and responsibilities that it takes while dealing with such an issue.
Information regarding the “attorney’s letters” is contained in AU Section 337. Here, there is the explanation as to the purpose and nature of the attorney’s letters. Attorney’s letters are normally sent by an audit firm and addressed to the client’s counsel. These letters work to inform the auditor of any pending or current litigation that involves a client. It also works to corroborate information that is provided by client management with regards to pending legal matters like unresolved lawsuits. An auditor sends a letter to the attorneys of the client after documenting claims, litigation or assessments to help confirm the material accuracy of the information.
If the attorneys are aware that the letters can be subpoenaed, it is possible that the information they provide to the auditors on the client’s legal matters will not be completely outright. This is because the attorneys are required by law to protect their clients and should not provide information that is likely to put them at legal risk. As a result, this will work to diminish the quality of audit evidence given the information that auditors receive.
Auditors have the knowledge that the audit work papers they prepare regarding tax matters could be obtained by the IRS. Regardless, the auditor has a professional responsibility to work in the best interest of upholding the relevant professional and moral standards. Moral standards such as honesty and integrity ought to compel auditors to issue a high level of accuracy in the documentation of information. As a result, an auditor should not work to alter the work papers in order to avoid the scrutiny from the IRS since such an action exposes the auditor to potential litigation.
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