The following are situations that may violate the AICPA Code of Professional Conduct. Assume, in each case,
Question:
The following are situations that may violate the AICPA Code of Professional Conduct. Assume, in each case, that the CPA is a partner, unless stated otherwise.
1. Elbert is a staff accountant at a CPA firm. Elbert’s wife works in human resources at one of the clients audited by Elbert’s firm, although Elbert is not on the audit engage- ment. As part of an employee stock ownership program at her company, Elbert’s wife receives shares of stock in her company.
2. Contel, CPA, advertises in the local paper that his firm does the audit of 14 of the 36 largest community banks in the state. The advertisement also states that the aver- age audit fee, as a percentage of total assets for the banks he audits, is lower than any other CPA firm’s in the state.
3. Baker, CPA, approaches a new audit client and tells the president that he has an idea that could result in a substantial tax refund in the prior year’s tax return by applica- tion of a technical provision in the tax law that the client had overlooked. Baker adds that the fee will be 50% of the tax refund after it has been resolved by the Internal Revenue Service. The client agrees to the proposal.
4. Jon Davis is a former partner at Davis, Harrison, Smith. He left the firm to work for an audit client of DHS. Since Davis was the only expert in the firm on not-for-profit clients, DHS pays him as a consultant when they have questions related to their not- for-profit audit engagements.
5. Able, CPA, owns a substantial limited partnership interest in an apartment build- ing. Frederick Marshall is a 100% owner in Marshall Marine Co. Marshall also owns a substantial interest in the same limited partnership as Able. Able does the audit of Marshall Marine Co.
6. Finigan, CPA, does the audit, tax return, bookkeeping, and management services work for Gilligan Construction Company. Mildred Gilligan follows the practice of calling Finigan before she makes any major business decision to determine the ef- fect on her company’s taxes and the financial statements. Finigan attends continuing education courses in the construction industry to make sure that she is technically competent and knowledgeable about the industry. Finigan normally attends board of directors meetings and accompanies Gilligan when she is seeking loans. Mildred Gilligan often jokingly introduces Finigan with this statement, “I have my three busi- ness partners—my banker, the government, and my CPA, but Finny’s the only one that is on my side.”
Auditing a business risk appraoch
ISBN: 978-0324375589
6th Edition
Authors: larry e. rittenberg, bradley j. schwieger, karla m. johnston