Judy Hanlon, CPA, performed an audit and prepared the federal income tax return for the Guild Corporation for the year ended December 31, 19X2. This was Ms. Hanlon's first engagement for this client. Ms. Hanlon found a significant error on the 19X1 return. She reported this error to Guild's controller, the officer responsible for tax returns. The controller stated, "Let the revenue agent find the error." The controller offered to furnish Ms. Hanlon with a letter assuming full responsibility for the error and his refusal to change it.

Required: Answer the following questions, giving reasons for your answers.

a. Would Ms. Hanlon have acted properly to accept the letter and take no further action? Explain the reasons for your answer.

b. Would Ms. Hanlon have acted properly to take this information to the IRS? Explain the reasons for your answer. C. What course of action should Ms. Hanlon have taken and why?