Industry standards for accounting methods and practices are set forth in a set of rules known as “Generally Accepted Accounting Principles,” or GAAP, which is issued by the Financial Accounting Standards Board (FASB). Individual states also have professional accountancy standards that are based in part on GAAP.
GAAP incorporates ten key concepts that include the Principle of Regularity, the Principle of Consistency, and the Principle of Sincerity. However, many of these standards are very general. And because GAAP guidelines are specific to financial reporting standardization, they do not necessarily apply to all accounting matters. Finally, only public companies are required to use GAAP. Private companies often choose to use them, but are not required to.
The American Institute of Certified Public Accountants (AICPA) has its own code of professional conduct that outlines principles of responsibilities, integrity, objectivity and independence, and due care for members. AICPA additionally provides accounting standards specific to audits (both for businesses and individuals), tax preparation, consulting services, valuation services, and continuing education. AICPA’s Auditing Standards Board sets forth “Generally Accepted Auditing Standards” (GAAS).
Regardless of which set(s) of professional accounting standards are applied, accountants owe a duty of care to their clients. This means they must generally:
- Avoid conflicts of interest
- Not misrepresent or omit material facts
- Perform services with competence, and avoid performing services that cannot be completed competently
- Perform due diligence on the client and the client’s finances in order to have a reasonable basis for drawing conclusions or making recommendations
- Obey applicable state and federal rules and regulation
- Meet licensing and continuing professional education (CPE) requirements
- Maintain accountant-client confidentiality
Due to professional accountant standards being broad and often overlapping, it is imperative to discuss possible misconduct with an experienced accounting malpractice attorney.