EP 3-2 Independence, Integrity, and Objectivity Cases. m Knowledge of the rules of conduct; interpretations thereof; and related rulings on independence. integrity, and objectivity will help you respond to the following cases. mutt-ed: For each case. state whether or not the action or situation violates the rules of professional conduct, explain why. and cite the relevant rule or interpretation. overstatement caused by employee theft and falsication of the records. The board discussed the matter and authorized its lawyers to explore the possibility of a lawsuit for damages. :5. Contrary Corporation led a lawsuit alleging negligent audit work. seeking_$l million in damages. c. In response to the lawsuit by Contrary._you decided to start litigation against certain ofcers of the company. alleging management fraud and deceit. You are asking for a damagtju_dgment of $500,000. a". The Allright Insurance company_paid Contrary Corporation $00,000 under delity bonds covering the employees involved in the inventorytheft. Both you and Contrary Corporation have dropped your lawsuits. However. under subrogation rights, Allright has sued your audit rm for damages on the grounds of negligent performance of the audit. :2. Colt & Associates, PAs, audit Gore Company. Alice Colt {CEO} and Bill Gore (president) discovered a limited real estate partnership deal that looked too good to pass up. Colt purchased limited partnership interests amounting to 23% of all such interests, and Gore personally_purchased 31%. Unrelated investors held the remaining 46%. Colt and Gore congratulated themselves on the opportunity and agreed to be passive investors with respect to the partnership. \fI. My Keems is not yet a PA but is doing _quite well in his rst empiyment with a large_ public accounting rm. He has been on the job two years and has become a \"heavyjunior.\" If he passes the PA exam in September. he will be promoted to senior accountant. This month, during the audit of Row Lumber Company. Johnny told the controller about how he is remodelling an old house. The controller likes Johnny and has a load of needed materials delivered to the housemg Johnny at a \"1% discounta savings over the normal cash discount of about $300. Johnny paid the bill and was happy to have the materials, which he otherwise would not have been able to afford on his meagre salary; m. PA Lily Rowan inherited $1 million from her grandather._$l00,000 of which was the value of shares in the North Country Bank. Lily practises accounting in Hamilton. and several of her audit clients have loans from the bank. n. Groaner Corporation is in nancial diiculty. You are about to sign the report on the current audit when your rm's ofce manager informs you that the audit fee for last year has not yet been paid. recruit and hire a new plant controller and a cost accountant