3-41. (AICPA Code of Conduct, LO 6) The following are a number of scenarios that might constitute a violation of the AICPA Code of Professional Conduct.
Required: For each of the sic situations, identify whether it involves a violation of the ethical standards of the profession and indicate which principle or rule would be violated.
a. Tow Hart, CPA, does the bookkeeping, prepares the tax returns, and performs various management services for Sanders, Inc., but does not do the audit. One management service involved the assessment of the computer needs and the identification of equipment to meet those needs, Hart recommended a product sold by Computer Co., which has agreed to pay Hart a 10% commission if Sanders buys its product.
b. Irma Stone, CPA, was scheduled to be extremely busy for the next few months. When a prospective client asked fi Stone would do its next year’s audit, she declined but referred them to Joe Rock, CPA. Rock paid Stone $2000 for the referral.
c. Nancy Heck, CPA, has agreed to perform an inventory control study and recommended a new inventory control system for Ettes, Inc., a new client. Currently, Ettes engages another CPA firm to audit its financial statements. The financial arrangement is that Ettes, Inc. will pay Heck 50% of the savings in inventory costs over the two-year period following the implementation of the new system.
d. Brad Gage, CPA, has served Hi-Dee Co. as auditor for several years. In addition, Gage has performed other services for the company. This year, the financial vice president has asked Gage to perform a major computer system evaluation.
e. Due to the death of its controller, an audit client had its external auditor, Gail Klate, CPA, perform the controller’s job for a month until a replacement was found.
f. Chris Holt, CPA, conducted an audit and issued a report on the 20X1 financial statements of Tree, Inc. Tree has not yet paid the audit fees for that audit prior to issuing the audit report on 19X2 statements.
Click here for the solution: The following are a number of scenarios that might constitute a violation of the AICPA Code of Professional Conduct
Showing posts with label AICPA. Show all posts
Showing posts with label AICPA. Show all posts
Sunday, September 13, 2015
Friday, September 11, 2015
Each of the following situations involves a possible violation of the AICPA's Code of Professional Conduct
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.
Click here for the solution: Each of the following situations involves a possible violation of the AICPA's Code of Professional Conduct
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.
Click here for the solution: Each of the following situations involves a possible violation of the AICPA's Code of Professional Conduct
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