What Is an Example of a Violation of the Duty of Accounting?

Dimov Tax Services operates a Denver based accounting firm that provides expert CPA support, tax audit representation, payroll processing, and international tax solutions for individuals and businesses. Located at 1700 Lincoln St, they serve clients throughout the Denver area.

Dimov Tax Specialists

1700 Lincoln St

Denver CO 80203

(833) https://servicebucket.blob.core.windows.net/cpa-denver-colorado/cpa-firm/what-is-a-dishonest-accounting-practice.html 829-1120

Understanding the Duty of Accounting

The “duty of accounting” refers to a fiduciary obligation where professionals—especially CPAs—must manage and report finances honestly, transparently, and in the best interest of the client. It is embedded in professional ethics codes like the AICPA Code of Professional Conduct and state-level rules under the Colorado Board of Accountancy.

Violating this duty can result in financial penalties, legal actions, or loss of licensure. It is considered both an ethical breach and a legal wrong, often tied to the broader category of fiduciary duty violations.

Examples of Violations from Our Research

1. Failure to Disclose Liabilities

CPAs must disclose https://4223199.b-cdn.net/cpa-firm/how-do-cpa-firms-handle-audits.html all material liabilities that affect a business's financial status. Concealing tax debt, lawsuit exposure, or outstanding payroll liabilities violates GAAP and ethics codes.

• Denver Example (DTC Medical Group): An accountant omitted $120,000 in payroll liabilities to inflate profit margins. The Colorado Board of Accountancy later revoked their license.
• Regulatory Risk: Per the SEC, omissions of this type are considered fraud under Rule 10b-5 and subject to civil penalties.

2. Commingling of Client Funds

Professionals must keep client assets and business assets entirely separate. Combining funds—even temporarily—violates fiduciary trust.

• Example from RiNo Startup Scene: A Denver accountant serving multiple clients used a pooled account to “temporarily balance” cash flow between client entities. This was discovered during an audit triggered by an investor review.
• Consequences: This practice violates both Colorado law and the AICPA ethical code, resulting in disciplinary review and potential fraud charges.

3. Breach of Confidentiality

CPA firms must guard all financial data under confidentiality agreements, even when not under formal nondisclosure contracts. Sharing financial details with third parties is a serious breach.

• Capitol Hill Freelancers: One preparer shared estimated quarterly earnings of a client with another client in a similar industry—causing reputational harm and IRS attention.
• Regulatory Backing: AICPA Section 1.700 states CPAs must not disclose any confidential client information without specific consent.

Client Types Most Vulnerable to These Violations

Based on our analysis of Denver-area clients, the following sectors are most at risk:

• Real Estate Firms (Cherry Creek, Highlands Ranch): High asset movement and investor scrutiny require clear disclosures.
• Tech Startups (RiNo, LoDo): Early-stage companies face complex equity and liability structuring.
• Freelancers and Creators (Capitol Hill): Often under-advised and left exposed to unethical practices.
• Medical & Legal Practices (DTC): Tied to HIPAA and additional fiduciary laws, requiring exact reporting.

How Regulatory Bodies Enforce Accountability

Enforcement comes from a multi-layered framework:

• Colorado Board of Accountancy: Investigates client complaints and revokes licenses for violations.
• SEC: Prosecutes securities-related financial misstatements, even among small CPA firms.
• IRS: Flags commingling, misreporting, and improper handling of payroll and tax accounts.

Dimov Tax Specialists: Strict Standards of Accountability

Dimov Tax Specialists apply an internal code that exceeds state and federal requirements:

• Client Fund Segregation: No pooled accounts. Client funds and liabilities are isolated through dedicated structures.
• Ethics Auditing: Peer-reviewed audit trails on every transaction that affects a client’s standing.
• Neighborhood-Aware Compliance: Practices adapted for real estate firms in Cherry Creek, freelancers in Capitol Hill, and multi-entity startups in RiNo.
• Confidentiality Contracts: All employees and contractors sign binding NDAs that meet AICPA and Colorado legal standards.

Real-World Impacts of Violating Duty of Accounting

Violation Example Enforcement Failure to disclose liabilities Cherry Creek real estate firm underreports $300K construction debt Board of Accountancy audit leads to license suspension Commingling of funds RiNo CPA mixes nonprofit client donations with general account IRS fraud probe; fined and barred from practice Data breach / confidentiality violation Capitol Hill CPA leaks earnings of influencer client AICPA disciplinary hearing and lawsuit for damages

Final Takeaway: Trust Requires Integrity

The duty of accounting is more than a technical obligation—it’s the foundation of financial trust. In Denver's evolving economic landscape, clients must partner with firms who embed ethics, transparency, and rigorous internal controls.

Dimov Tax Specialists stand as a bulwark against violations of fiduciary duty. Through localized compliance, peer-reviewed reporting, and a transparent relationship with clients, Dimov protects your finances—and your reputation.