Accountants And 'Insider' Trading

Accountants who have routine access to nonpublic information and rely on their reputations for the credibility of their opinions are particularly vulnerable to charges of improprieties. The Securities Exchange Act of 1934 subjected 3 "insider" groups -- directors, officers, and principal stockholders -- to special trading restrictions and filing requirements. An expanded definition of "insider" now includes others who know facts of special significance about a security. Three complementary rules are commonly applied to the regulation of insider trading. Since there is considerable inside information involved in the audit process, control must be achieved through employee training and by limiting their freedom to examine client documents and audit working papers. The accountant's window of vulnerability is large and the cost of reinforcing the rules of ethics is small in comparison with the potential benefits. The reinforcement of ethical training may: 1. save the careers of employees, 2. prevent disciplinary actions, and 3. prevent irreparable damage to a firm's reputation.