Questions and Answers of Legal Research Analysis

How does the Sarbanes-Oxley Act seek to create an ethical organization culture?
An important factor in an individual’s decision whether to become a whistleblower is their sense of duty and loyalty. Imagine a CPA discovers that their supervisor is committing fraud to make the
Do you believe the U.S. Supreme Court decision in Digital Realty Trust, Inc. v. Somers was the “right” decision? Explain the basis for your answer from a whistleblower’s perspective.
Should whistleblowers be allowed to use confidential company documents to expose fraud and other illegality? Use the ruling in Erhart v. BofI Holdings to guide the discussion.
Given the requirements of the Dodd-Frank Act to receive an award, what factors should a potential whistleblower consider before blowing the whistle to the SEC on financial wrongdoing from an ethical
Review the facts related to the reporting of financial statement fraud by Tony Menendez at Halliburton. In commenting on his actions, Menendez said one reason for bringing a claim under SOX was to be
Occupational fraud comes in many shapes and sizes. The $12.9 million dollar fraud and kickback scheme at Rite Aid is one such case.In February 2015, Jay Findling, a New Jersey businessman, pleaded
What are the indicators that occupational fraud might exist? Explain.
According to the 2020 Global Study on Occupational Fraud and Abuse, a tip is the most common way to report fraud. What should be the ethical considerations for employees before deciding whether to
On September 8, 2016, Wells Fargo announced it was paying $185 million in fines to Los Angeles city and federal regulators to settle allegations that its employees created millions of fake bank
What is the role of the board of directors in developing an ethical organization culture?
What prompted partners at KPMG to facilitate cheating on internal training exams? In 2018, Timothy Daly, a former lead engagement partner, solicited and received questions and answers to the
Family Games, Inc., is a privately owned company with annual sales from a variety of wholesome electronic games that are designed for use by the entire family. The company sees itself as
Katy Carmichael, CPA, was just promoted to audit manager in the technology sector at a large public accounting firm. She started at the firm six years ago and has worked on a number of the same
Joe Kang is an owner and audit partner of Han, Kang & Lee, LLC. As the audit of Frost Systems was reaching its concluding stages on January 15, 2022, Kang met with Kate Boller, the CFO, to
In the first three months of 2021, Johnson Pharmaceutical’s sales and earnings were declining, placing the company in financial distress. As a result, Johnson had begun the process of borrowing $1
Discuss whether an ethical conflict exists in violation of the AICPA rules in each of the following situations:a. A senior on an audit receives a gift certificate from a client to the most expensive
The audit of KBC Solutions by Carlson and Smith, CPAs, was scheduled to end on February 28, 2019. However, Rick Carlson was uncertain whether it could happen. As the review partner, he had just
Your tax client, Steve Michaels, told you that his former accountant who prepared his annual tax returns made errors that resulted in him suffering more than $100,000 in losses. Apparently, the
Answer each of the following questions from the perspective of an auditors’ liability to a third party. In each case, discuss whether the bank has a legitimate cause of action against the auditor
Distinguish between the legal standards of gross negligence and fraud.
Under what circumstances might an auditor be held legally liable for negligent representation versus a fraudulent misrepresentation based on court rulings discussed in the chapter? Include in your
Nixon and Co., CPAs, issued an unmodified opinion on the 2021 financial statements of Madison Corp. These financial statements were included in Madison’s annual report and Form 10-K filed with the
Explain how the intent requirement of the legal principle of scienter relates to ethical standards of behavior discussed in previous chapters.
Danny Boy, a local CPA who owns a tax practice, is being investigated by the IRS for the preparation of false income tax returns for a client. The IRS alleges that the individual taxpayer/client used
Explain the defenses available to auditors in plaintiff claims of “aiding and abetting” of fraud in violation of Section 10b-5 of the Securities Exchange Act of 1934.
What is the comparative negligence defense? When can it shield auditors from legal liability for their actions?
Helen Roberts is reviewing two transactions recorded by her client, Biotechnologies (Biotech), as part of her accounting firm’s annual audit of the client for the December 31, 2021, financial
The issue of the size of executive compensation packages is explored in the text. In 2019, Elon Musk at Tesla was the highest paid CEO with combined compensation from all sources (i.e., salary,
A CEO and CFO of a public company filing a quarterly or annual report with the SEC must consider the requirements of Section 302 of the Sarbanes-Oxley Act. In addition, the Section 302 certification
“Conscious Capitalism” has become a buzz word for corporate governance in recent times. Explain the concept of conscious capitalism in the context of corporate social responsibilities.
During the past few years, surveys of millennials’ opinions about work have taken front and center in the focus on CSR. In one survey, 86 percent of millennials (those between the ages of 22 and
You are a tax accountant and have just discussed a complex tax matter with your client. The client wants you to adopt a tax position that is favorable to its interests. You are not sure whether the
Internal Controls Over Financial Reporting (ICFR) is an important component in fostering confidence in a company’s financial reporting, and ultimately, trust in our capital markets. Former SEC
A major fraud at Chinese company Luckin Coffee in 2020 has raised questions whether Chinese firms with shares listed on the New York Stock Exchange or Nasdaq should be required to undergo the same
Can a CPA auditor be independent without being objective and impartial? Can a CPA auditor be objective and impartial without being independent? Explain your answer in the context of recent rule
Explain the difference between the “realistic possibility of success” tax standard for taking a tax position under SSTS Interpretation No. 101-1 and the “reasonable basis” standard. When
Barbara Houston is a CPA with her own accounting and tax practice. One day an audit client asks her to represent him in a conference with the IRS about his prior years’ tax return. It seems the IRS
Lloyd Schuman, a former senior internal auditor at Verso Corporation, learned about confidential plans that Verso, a publicly traded paper company, was going to acquire a privately held paper
Do you believe that CPAs in business should be held to the same high ethical standards as CPAs in public practice? Why or why not? Include in your discussion how those standards would apply to CPAs
Do you agree with the proposal of the Competitions and Market Authority in the United Kingdom that the Big Four firms should be split operationally so that audit and non audit services are conducted
What can CPA firms do about the relatively high rate of audit deficiencies identified in PCAOB inspections of firm audits?
AU-C 240, Consideration of Fraud in a Financial Statement Audit, specifically identifies red flags the auditor should be on the lookout as for throughout the audit process (from client engagement
Identify and discuss the “Best Audit Practices” the PCAOB has identified as a way to improve audit quality, and reduce audit deficiencies.
On January 30, 2018, General Electric (GE) announced that it was taking an after-tax charge of $6.2 billion in the December 31, 2017 financial statements and additional cash funding of $15 billion in
“We can’t recognize revenue immediately, Paul, since we agreed to buy similar software from DSS,” Sarah Young stated. “That’s ridiculous,” Paul Henley replied. “Get your head out
In the same survey, managers were asked how acceptable earnings management was within their company’s culture, with 1 = culturally unacceptable and 8 = culturally acceptable. The average response
Winners & Losers, Inc. (WLI) is a Nevada corporation with its principal place of business in Las Vegas. Its business model is to provide electronic sports betting in conjunction with a new law
In a recent survey of 122 public company managers with financial reporting experience, respondents were asked how morally right they believed earnings management to be. Managers responded on a scale
How do AI and machine learning systems differ from the existing data analytic auditing systems like IDEA? Include a discussion of the professions’ concerns surrounding the use of AI in auditing.
Ronnie Maloney, an audit partner for Forrester and Loomis, a registered public accounting firm in Boston, just received a meeting request from Jack McDuff, the chairman of the audit committee of
In what some are suggesting is the worst financial reporting fraud since Enron, Wirecard filed for bankruptcy in June of 2020 after admitting that €1.9 billion Euros ($2.1bn U.S.) on its balance
Travis McGee, a Senior Audit Manager for a Big Four Audit, Consulting, Tax and Data Analytics organization, has just spent the last year helping the firm rollout its new Artificial Intelligence
The modern day audit is evolving rapidly. Some fear that auditors will be replaced by artificial intelligence (AI). Is this a valid concern?
Richard Lange, CPA, is a sole practitioner. The largest audit client in his office is Echo Park Sportswear (EP Sports). EP Sports is a privately owned company in South Bend, Indiana with a 12-person
Assume you are a CPA and the CFO of a large public company. You have identified a red flag that financial impropriety may exist in the reported numbers. Would you report it to the external auditors?
Maines and Whalen state in their research paper on the reliability of accounting information: “Accrual estimates require judgment and discretion, which some firms under certain incentive
What is the purpose of using financial analysis to spot earnings management?
You just became the new external auditor of a large public company that carries freight throughout the world. You just began to audit the 2021 financial statements and have come across a transaction
When should financial statements be restated?
Meredith Merriweather, CPA is the CFO of Trego Bikes and Trikes (TBT), a manufacturer of Bicycles ranging from tricycles to high-end racing bikes. The company has good market penetration and has seen
Jeremy Strong, CPA was recently hired as the new CFO of Image ware Consolidated (IC), a small publicly owned company. This is Jeremy’s first job outside of public accounting, leaving Deloitte after
Distinguish between big R and little r restatements. What is required of management and the external auditors when such events occur?
According to Linda Thornton, ethical leadership failures can be caused by different types of problems that may worsen. Some of these problems are caused by individuals and others may be embedded in
Explain how errors in accounting and reporting can trigger restatements.
The Kraft Heinz Co. case was discussed in the chapter. To refresh your memory, on May 6, 2019, Kraft Heinz disclosed that it would restate its financial statements due to faulty procurement
Explain how restatements due to operational issues can trigger restatements.
Rule 10b-5 is a regulation created under the Securities and Exchange Act of 1934 that targets securities fraud. Explain how the provision is applied in determining whether fraud has occurred
From the first quarter of 2018 through the third quarter of 2021, Accelerator, Inc., engaged in a wide-ranging fraud designed to artificially inflate the company’s reported revenue. This fraud
It has been said that “Businesses don’t fail—Leaders do.” Explain what this means.
Why do bad things sometimes happen to good people? Does this mean they are a bad person?
Why are Equity, Diversity, and Inclusivity considered to be important for businesses today?
What motivates a parent to bribe key people to get their kid admitted to a prestigious university? That is the ethical question of “Operation Varsity Blues.”In March 2019, the story broke of an
Ed Giles and Susan Regas have never been happier than during the past four months since they have been seeing each other. Giles is a 35-year-old CPA and a partner in the medium-sized accounting firm
For years, the Baseball Hall of Fame has officially steered clear of the question as to how voters should handle the candidacies of players connected to performance-enhancing drugs. Initially, two of
Jose and Emily work as auditors for the state of Texas. They have been assigned to the audit of the Lone Star School District. There have been some problems with audit documentation for the travel
Sam and John have been friends for 20 years. They met in college and worked together for 10 of the 20 years. During that time, each made a promise that if they won a lottery they would share the
According to the website Indeed, one question to ask the interviewer when you are interviewing for a job is: “What are the characteristics of someone who would succeed in this role?” Why might
Some people believe that promise keeping is the essence of ethical behavior. Do you agree?
Section 179 of the IRS tax code allows qualifying businesses to deduct the full cost of “eligible property” on their income taxes as an expense, rather than requiring the cost of the property to
What does the term “civility” mean to you? Do you think it is civil behavior to shout down a speaker with whom you do not agree? What about cancelling someone because you don’t agree with their
Jenna was irritated after class today. A classmate, Ben, had argued about the need for social justice reform that included defunding the police. Jenna was offended by the comments in part because her
MacIntyre, in his account of Aristotelian virtue, states that integrity is the one trait of character that encompasses all the others. How does this relate to the Principles in the AICPA Code of
Do you think the “Resolution of Ethical Issues” section in The IMA Statement of Ethical Professional Practice is a helpful part of its ethical standards?
One morning a student telephones her professor that she won’t be able to take a scheduled exam because her car broke down on the way home from an out-of-town trip. She asks to take it at another
Consider the ethical principle of praising the good and ignoring the bad. Is this a good way to foster ethical behavior?
Gregory and Alex started a small business based on a secret-recipe salad dressing that got rave reviews. Gregory runs the business end and makes all final operational decisions. Alex runs the
Hailey Declaire, a CPA, just sent the tax return that she prepared for a client in the marijuana growing and distribution business, Weeds ‘R’ Us, to Harry Smokes the manager of the tax
Milton Manufacturing Company produces a variety of textiles for distribution to wholesale manufacturers of clothing products. The company’s primary operations are located in Long Island City, New
Leaving home for the first time and going off to college is an exciting and stressful time for tens of thousands of students across the United States each year. Leaving the familiarity of family,
Sherron Watkins regrets not taking more action back in 1996 when she first concluded that Enron’s accounting might not be in accordance with GAAP. Explain how GVV training might have helped her
How do the reasons and rationalizations of GVV influence the culture of the organization?