Question

If Sara, a CPA noticed that her friend is planning to invest his money in a company which is Sara currently working on. Sara advised her friend that it is not a good investment option without disclosing how she knows or why. What code of conduct does she violate and what alternative action she can take?

Answer 1

Sara is violating the Confidential Client Information Rule under Rule 301 of AICPA Code of Professional conduct.

This is a violation because Sara doesn't have the specific consent of the client.

CPAs generally do not have an obligation to inform outsiders of client's fraudulent activities. But remaining silent makes the CPA culpable of the fraud. If the CPA decides to reveal the client's financials are fraudulent and they turn out to be false, the client can sue the CPA for defamation and breach of confidentiality.

Alternative action:

Due to legal consequences of both disclosing and undisclosing, it is best adviced to seek legal counsel guidance when faced with such a situation.

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