Knowledge of the rules of conduct and interpretations thereof will help you respond to this case problem. Gilbert and Bradley formed a corporation called Financial Services Inc. Each took 50% of the authorized common shares. Gilbert is a PA and a member of the provincial institute. Bradley is a CPCU (Chartered Property Casualty Underwriter). The corporation performs auditing and tax services under Gilbert’s direction and insurance services under Bradley’s supervision. The opening of the corporation’s office was announced in a full-page advertisement in the local newspaper.
One of the corporation’s first audit clients was the Grandtime Company. Grandtime had total assets of $600,000 and total liabilities of $270,000. In the course of the audit, Gilbert found that Grandtime’s building with a book value of $240,000 was pledged as a security for a 10-year term note in the amount of $200,000.
The client’s statement did not mention that the building was pledged as security for the 10-year term note. However, as the failure to disclose the lien did not affect either the value of the assets or the amount of the liabilities, and the audit was satisfactory in all other respects, Gilbert rendered an unqualified opinion on Grandtime’s financial statements. About two months after the date of his opinion, Gilbert learned that an insurance company was planning to lend Grandtime $150,000 in the form of a first-mortgage note on the building. Realizing the insurance company was unaware of the existing lien on the building; Gilbert had Bradley notify the insurance company of the fact that Grandtime’s building was pledged as security for the term note.
Shortly after the events described above, Gilbert was charged with several violations of professional ethics.
Identify and discuss the rules of professional conduct violated by Gilbert and the nature of the violations.