Accounting Ethics: Duties and Responsibilities Gordon Klein Table of Contents Chapter 1 – Duties as a Whistleblower ............................................... 1 Learning Objectives ........................................................................... 1 Am I Ethical?...................................................................................... 1 Introduction ........................................................................................ 2 What Is Whistleblowing? .................................................................... 3 The Types of Whistleblowers ............................................................. 4 Internal Whistleblowers .................................................................. 5 External Whistleblowing ................................................................. 7 Whistleblower Motivations .................................................................. 9 Revenge ...................................................................................... 10 Reputation Preservation ............................................................... 11 Altruism ........................................................................................ 12 Collecting Financial Rewards ....................................................... 12 Adversities Faced By Whistleblowers ............................................... 18 The Downside of Whistleblowing .................................................. 18 Whistleblower Protections ............................................................ 20 Employer Manipulation of the Anti-retaliation Rules ...................... 22 Employee Manipulation of the Anti-retaliation Rules ..................... 24 Outside Auditors as Whistleblowers ................................................. 25 Divulging Client Improprieties ....................................................... 25 Divulging Audit Firm Improprieties ................................................ 26 Whistleblowing in Tax Practice ......................................................... 27 The American View ...................................................................... 27 The International View.................................................................. 27 Cultural Aspects of Whistleblowing ................................................... 28 Biological Aspects of Whistleblowing ................................................ 28 Encouraging an Ethical Organizational Culture ................................. 31 Deciding Whether to Become a Whistleblower ................................. 32 Solution to “Am I Ethical?” ................................................................ 33 Review Questions ............................................................................ 34 Review Answers .............................................................................. 35 Chapter 2 – Duties of Tax Professionals .......................................... 37 Learning Objectives ......................................................................... 37 Am I Ethical?.................................................................................... 37 Introduction ...................................................................................... 37 Professional Responsibilities in Tax Practice .................................... 38 The Governing Sources of Guidance ............................................ 38 The SSTS Framework .................................................................. 39 Duties as a Tax Return Preparer ...................................................... 39 Obtaining Client Information ......................................................... 40 Filling in Information Gaps ............................................................ 42 Formulating Tax Return Positions ................................................. 43 Evaluating Uncertain Tax Positions .............................................. 44 Completing a Tax Return.............................................................. 50 Table of Contents Correcting Past Tax Returns ........................................................ 50 Completing the Client Engagement .............................................. 53 Duties as a Taxpayer Advocate ........................................................ 53 Duties as a Tax Planner ................................................................... 54 General Professional Duties ............................................................. 56 The Taxpayer’s Duties ..................................................................... 57 The Importance of Truthful Tax Reporting ........................................ 57 Solution to “Am I Ethical?” ................................................................ 58 Review Questions ............................................................................ 59 Review Answers .............................................................................. 60 Chapter 3 – Duties of Fiduciaries: Financial Planners, Trustees, and Executors ................................................................... 63 Learning Objectives ......................................................................... 63 Am I Ethical?.................................................................................... 63 Introduction ...................................................................................... 64 Fiduciary Relationships .................................................................... 64 The Nature of Fiduciary Relationships .......................................... 64 The Legal Consequences of Being a Fiduciary ............................. 65 Personal Financial Planners and Asset Managers ............................ 66 Applicable Professional Standards ............................................... 66 General Legal Standards.............................................................. 67 Specific Duties Associated with Custody of Assets ....................... 68 How to Avoid Creating a Fiduciary Relationship............................ 69 Trusts and Trustees ......................................................................... 69 The Structure of a Trust ............................................................... 69 Advantages of Trusts ................................................................... 70 Special Kinds of Trusts ................................................................. 71 Accountants in Trust Practice ....................................................... 74 The Specific Duties of a Trustee ................................................... 76 Executors and Administrators ........................................................... 78 The Structure of an Estate ............................................................ 78 Accountants in Estate Practice ..................................................... 79 Fiduciary Issues in Tax Practice ....................................................... 80 Negotiating Tax Refunds .............................................................. 80 Resolving Conflicts of Interest ...................................................... 80 Auditor Independence Requirements for Trustees and Executors ..... 81 The Ethical Dilemma .................................................................... 81 The Independence Rules ............................................................. 81 Solution to “Am I Ethical?” ................................................................ 82 Review Questions ............................................................................ 83 Review Answers .............................................................................. 84 Chapter 4 – Duties in the Accounting Workplace............................. 87 Learning Objectives ......................................................................... 87 Am I Ethical?.................................................................................... 87 ii Table of Contents Introduction ...................................................................................... 87 Equality in the Workplace ................................................................. 88 Hiring Discrimination in the Workplace ......................................... 88 Fair Pay in the Workplace ............................................................ 91 Privacy in the Workplace .................................................................. 94 Privacy Rights on the Job ............................................................. 94 Privacy Rights off the Job ............................................................. 96 Respect for Freedom of Association, Property Rights, and Contracts .................................................................................. 100 Covenants Not to Compete ........................................................ 101 Trade Secrets and Confidential Relationships ............................ 102 Employment at Will .................................................................... 103 The Duty to Tell the Truth ............................................................... 105 The General Principle................................................................. 105 Giving Notice to an Employer ..................................................... 106 The Duty to Protect Employees from Physical Harm ....................... 107 Solution to “Am I Ethical?” .............................................................. 108 Review Questions .......................................................................... 109 Review Answers ............................................................................ 110 Glossary ........................................................................................... 111 Index ................................................................................................. 115 iii .