Question

Donald Westerman is president of Westerman Corporation, a nonpublic manufacturer of kitchen cabinets. He has been approached by Darlene Zabish, a partner with Zabish and Co., CPAs, who suggests that her firm can design a payroll system for Westerman that will either save his corporation money or be free. More specifically, Ms. Zabish proposes to design a payroll system for Westerman on a contingent fee basis. She suggests that her firm’s fee will be 25 percent of the savings in payroll for each of the next four years. After four years Westerman will be able to keep all future savings. Westerman Corporation’s payroll system costs currently are approximately $200,000 annually, and the corporation has not previously been a client of Zabish. Westerman discussed this offer with his current CPA, Bill Zabrinski, whose firm annually audits Westerman Corporation’s financial statements. Zabrinski states that this is a relatively simple task and that he would be willing to provide the service for $30,000.
a. Would Zabish violate the AICPA Code of Professional Conduct by performing the engagement?
b. Would Zabrinski violate the AICPA Code of Professional Conduct by performing the engagement?
c. Now assume that Westerman has indicated to Zabrinski that he is leaning toward accepting Zabish’s offer. Zabrinski then offers to provide the service for 15 percent of Westerman’s savings for the next three years. Would performing the engagement in accordance with the terms of this offer violate the AICPA Code of Professional Conduct?
d. Now go back to the original information (do not consider Zabrinski’s 15 percent offer in part c). If Westerman Corporation was a public company (“an issuer”), would Zabish violate PCAOB standards by performing the engagement?
e. Now go back to the original information (do not consider Zabrinski’s 15 percent offer in part c). If Westerman Corporation was a public company (“an issuer”), would Zabrinski violate PCAOB standards by performing the engagment?



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  • CreatedOctober 25, 2014
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