Auditing P 4-21 Each of the following situations involves a possible
violation of the AICPA's Code of Professional Conduct. For each
situation, state the applicable section of the rules of conduct and
whether it is a violation.
a. Jose Martinex is a CPA, but not a partner, with 3 years of
professional experience with Lyle and Lyle, CPAs. He owns 25 shares of
stock in an audit client of the firm, but he does not take part in the
audit of the client, and the amount of stock is not material in relation
to his total wealth.
b. A nonaudit client requests assistance of J. Bacon, CPA, in the
installation of a local area network. Bacon had no experience in this
type of work and no knowledge of the consultant is not in the practice
of public accounting, but Bacon is confident of his professional skills.
Because of the highly technical nature of the work, Bacon is not able
to review the consultant's work.
c. In preparing the personal tax returns for a client, Phyllis Allen,
CPA, observed that the deductions for contributions and interest were
unusually large. When she asked the client for backup information to
support the deductions, she was told, "Ask me no questions, and I will
tell you no lies." Allen completed the return on the basis of the
information acquired from the client.
d. Sally Blanchard, CPA, serves as controller of a U.S. based company
that has a significant portion of its operations in several South
American countries. Certain government provisions in selected countries
require the company to file financial statements based on international
standards. Sally oversees the issuance of the company's financial
statements and asserts that the statements are based on international
financial accounting standards; however the standards she uses are not
those issued by the International Accounting Standards Board.
e. Bill Wendal, CPA, set up a casualty and fire insurance agency to
complement his auditing and tax services. He does not use his own name
on anything pertaining to the insurance agency and has a highly
competent manager, Frank Jones, who runs it. Wendal often requests Jones
to review the adequacy of a client's insurance with management if it
seems underinsured. He believes that he provides a valuable service to
clients by informing them when they are underinsured.
f. Five small Chicago CPA firms have become involved in an information
project by taking part in an interim working paper review program. Under
the program, each firm designates two partners to review the audit
files, including the tax returns and the financial statements of another
CPA firm taking part in the program. At the end of each review, the
auditors who prepared the working papers and the reviewers have a
conference to discuss the strengths and weaknesses of the audit. The do
not obtain conference to discuss the strengths and weaknesses of the
audit. They do not obtain authorization from the audit client before the
review takes place.
g. James Thurgood, COA stated longer than he should have at the annual
Christmas party of Thurgood and Thrugood, CPAs. On his way home he drove
through a red light and was stopped by a police officer, who observed
that he was intoxicated. In a jury trial, Thurgood was found guilty of
drives under the influence of alcohol. Because this was not his first
offense, he was sentenced to 30 days in jail and his driver's license
was revoked for 1 year.
h. Rankin, CPA, provides tax services, management advisory services,
and bookkeeping services and conducts audits for the same nonpublic
client. Because the firm is small, the same person often provides all
the services.
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