Jackson Brown, CPA, has two clients, Tarpan Financial, Inc. and Oscar Industries. During his most recent audit of Oscar, he discovered a potential overstatement of inventories because customer returns and scrap were often counted as in good condition. Because the plant supervisor assured Jackson that an extensive new rework policy was in place to assure the usefulness of this inventory within three months, he did not adjust the inventories downward.
Now, Tarpan is considering buying out Oscar Industries, using the information generated from that audit report and accompanying financial statements. While it is not public knowledge, Jackson knows that some financial dealings at Oscar have deteriorated since his audit. In driving home one day after the news of the possible buy-out, he notices that the scrap lot has filled up significantly since his last walk-through inspection.
At that point, Jackson thinks that the deal may be great news for Oscar but will involve many risks for Tarpan and wonders if he should provide Tarpan with information about the potential danger.
Identify the ethical and Code of Professional Conduct issues in the scenario.