CPA’s Liability as Corporate Director

Source: AICPA CPA Insider

Section 407 of the Sarbanes-Oxley Act requires companies lacking financial experts on their audit committees to disclose their reasons. Disclosing the reasons may be more onerous than including an expert on the committee. Although a CPA is not required, many companies choose CPAs because they have the right qualifications.

Most states follow the Model Business Corporation Act (MBCA), which imposes the following standards on directors:

• Act in good faith.
• Act in the corporation’s best interests.
• Use appropriate care.
• Rely on the statements of others so long as the director “does not have knowledge that makes this reliance unwarranted.”

The article states, “The common law business judgment rule, the main provisions of which have been incorporated into the MBCA, protects directors involved in shareholder lawsuits. Under this safe harbor, a director is not liable for breaching a fiduciary duty as long as he or she acts in good faith, believes the decisions are in the corporation’s best interest, makes an informed decision, and does not act with self-interest.”

From AICPA CPA Insider, September 2007, www.cpa2biz.com. For the complete article, click here.