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The times have changed dramatically for CPAs. No longer are there only purely traditional CPA firms providing accounting, attestation, and tax services. The major firms are well-run, widespread conglomerates performing investment advisory, wealth management, personal financial planning, mergers and acquisitions, divestiture, strategic planning, forensic, business risk management, brand and reputation, and other advisory services. Even smaller CPA firms perform variations of these services, often on a limited, "informal" basis. How has this expansion affected CPAs' professionalism and legal liability? When do CPAs have a fiduciary duty, and how does that affect the delivery of these varied services?
Answering these questions begins with understanding the legal and accounting meaning of two comparable, but different terms-"fiduciary duty" and "due professional care"-and continues with determining how they pertain to a CPA's legal liability to the client and the public related to delivery of services and responsibilities under the professional standards.
Defining the Terms
Fiduciary duty. Fiduciary duty is a legal concept established by law, not by any accounting, auditing, or other related professional standard. Black's Law Dictionary defines fiduciary duty as "a duty of utmost good faith, trust, confidence, and candor owed by a fiduciary (such as a lawyer or corporate officer) to the beneficiary (such as a lawyer's client or a shareholder); a duty to act with the highest degree of honesty and loyalty toward another person and in the best interests of the other person (such as the duty that one partner owes to another)."
A fiduciary is defined as "either one who owes another the duties of good faith, trust, confidence, and candor or one who must exercise a high standard of care in managing another's money or property."
It is important to understand that these are the legal definitions of the terms. They are not defined in authoritative accounting and auditing literature; they are defined in the law through a synthesis of legal decisions involving the obligations and duties of one party to another in certain specific circumstances, and are heavily based in the law and the facts and circumstances involved in the underlying litigation. In order to determine whether one party owes a fiduciary duty to another, courts will look to the nature of the relationship between the parties. Although under some circumstances...