For each of the following scenarios, indicate whether in your opinion it is a violation of the HKICPA Code of Ethics. Specifically, for each scenario, choose one of the following options: (1) not likely to be a violation; (2) likely to be a violation; or (3) clearly a violation. For each scenario, clearly explain your reasoning.

1.            Ho and Ho, CPAs, has served as the audit firm for Garland Manufacturing Ltd. for several years. Garland is currently being investigated for possible tax fraud by the Inland Revenue Department (IRD). The IRD has contacted Ho and Ho and requested that certain detailed financial information obtained during their audits of Garland be disclosed to the tax authorities. Ho and Ho submits the requested information to the IRD without obtaining permission from Garland.

2.            Jack Chow, CPA, is the audit partner in charge of the Henderson Company audit. Jack’s wife Anna owns stock in Greenfields Production Ltd. Greenfields owns 30 percent of the outstanding stock of Henderson. The investment in Greenfields is material to Anna and Jack.

3.            Mo and Chan, CPAs, serves as the auditor of Hong Kong Heritage Ltd. Richard Leng, a consulting partner in the Hong Kong office of Mo and Chan, owns a small amount of stock in Hong Kong Heritage that is immaterial to his net worth. The consulting department of the firm is separate from the auditing department and has virtually no interaction with auditing personnel.

4.            Chan and Ting, CPAs, perform the annual financial statement audit for Sunrise Bank. Michelle Tang, the audit manager in charge of the Sunrise engagement, recently obtained a loan from Sunrise to purchase a flat. The interest rate on the loan was significantly below the market rate of interest at the time the loan was obtained.

5.            Luo and Yip, CPAs, audits Business Software Solutions (BSS). Luo and Yip have an agreement under which they periodically recommend the accounting software packages produced by BSS to some of their smaller attestation clients in exchange for a commission. The financial amounts involved under this agreement have been clearly immaterial to both Luo and Yip and BSS.

Answer rating: 100% (QA)

1 This scenario is likely to be a violation of the HK IC PA Code of Ethics The code requires CP As to protect the confidentiality of client information which Ho and Ho have failed to do by disclosing ... View the full answer