Once upon a time, in 2010, Ava Alexander decided to form a mid-sized accounting firm located in San Diego right after she graduated college to perform only tax services for her clients. Ava Alexander was initially very successful because her marketing tag line was: "I've never lost an IRS audit." However, Ava Alexander never actually had, nor would she ever, represent a client in an audit before the IRS or any other tax agency. She simply prepared their income tax returns. In fact, Ava Alexander never herself took the CPA despite otherwise having the educational experience. From 2010 until 2012, Ava Alexander operated the firm under the name of "Alexander & Associates Accounting Firm, Inc." and brought on her first employee, Braxton Bennett, on July 1, 2012. At the time Braxton Bennett was just an accounting student but showed such potential that Ava Alexander gave him a fifty percent (50%) equity interest in the firm on July 1, 2013, and promptly changed the name of the firm to "Alexander, Bennett & Assoc., Inc." Braxton Bennett graduated and passed his CPA in 2015 and has worked with Ava Alexander at Alexander, Bennett & Assoc., Inc. ever since. Braxton Bennett would not be Alexander, Bennett & Assoc., Inc.'s only employee. As the firm grew additional CPAs and staff were added. First, Ava Alexander wanted to expand the firm's services to include audit and other attest engagements, so in 2016 she hired Cara Connor. Cara Connor had spent the last five years as a California licensed CPA and the controller of a large, publicly-traded company, "Dylan, Inc." Dylan, Inc. manufactures pharmaceutical products to treat often neglected tropical diseases like Dengue Fever, leprosy, and rabies. Dylan, Inc. was run by an iron-fisted CEO named Owen Oliver. For example, in 2015 Owen Oliver and Cara Connor flew from Dylan, Inc.'s New York headquarters to Panama for a meeting with that country's Minister of Public Health. At the meeting between Owen Oliver, Cara Connor, and the Panamanian Minister of Public Health, Owen Oliver got upset and shouted in the Minister's face: "If you don't buy our company's drugs you just may not live to see another day!" Quick to act, Cara Connor tried to smooth the relationship and told the Minster: "Look, he's drunk. There must be something we can do to convince Panama to buy our company's life-saving drugs...? What if we sponsor your World Cup, soccer team? I hear you're a big fan..." Despite saving the procurement contract Cara Connor was left uneasy by the ordeal and hence her decision to leave Dylan, Inc. for the greener pastures of Alexander, Bennett & Assoc., Inc. the next year. Ava Alexander also added Ethan Easton, Fiona Freya, and Grant Griffin (all California licensed CPAs), and Henry Hudson and Ivy Iris (administrative staff person who had no prior accounting experience) in 2017. Unknown to Ava Alexander, Ethan Easton moonlights as a tax return preparer. Ethan Easton's main area of expertise is preparing tax returns for strippers. Because of the sensitive nature of their work, i.e., the large amounts of potentially unreported cash income, Ethan Easton charges each stripper $15,000, per year, to prepare their tax returns. Ethan Easton is further in the habit of making up dependents and arbitrarily changing his stripper/client's income to maximize their entitlement to certain tax incentives like the Earned Income Tax Credit. But Ethan Easton is savvier than that. He frequently referred his stripper/clients to Dr. Paul Paddy for all plastic surgery needs. In exchange for referring each stripper/client, Dr. Paul Paddy sends Ethan Easton a bottle of wine, and each year Dr. Paul Paddy takes Ethan Easton on his private yacht for a weekend getaway trip to Catalina Island. A seventh and eighth CPA, Kevin King and Landon Lincoln, respectively, also interviewed for jobs with Alexander, Bennett & Assoc., Inc. in 2017. During Kevin King's interview, he and Ava Alexander had the following exchange: Ava: "What would make you a valuable member of my team?" Kevin: "Well...I'm very hardworking, I have 5 years of audit experience, and I bring a level of diversity that I think your firm is missing." Ava: "What!?!?!? What could my amazing firm be missing?" Kevin: "I'm gay, and it appears that nobody else on your staff is. That could be an advantage." Annoyed - not at Kevin King being gay but at his statement that her firm was missing anything at all - Ava Alexander decided not to hire him. The very next day she interviewed Landon Lincoln during which the following exchange occurred: Ava: "What would make you a valuable member of my team?" Landon: "I'm very hardworking, I have 6 years of audit experience, and I love your shoes." Ava: "Well that's so kind of you! We at Alexander & Bennett pride ourselves on being a tight family. Is there anything about you that I should know before we make a decision?" Landon: "It shames me to admit it, but I'm a convicted felon. When I was 19 years old, I was in a bar fight and knocked the bouncer out. I'm not proud of my action. I feel that I've done my time and that is all behind me now." Ava Alexander was appalled at Landon Lincoln's felony conviction. Because of that, she decided not to hire him, but what Ava Alexander did not know at the time was California had recently passed a law making it illegal to discriminate against a former felon in the workplace. Nevertheless, based on the earlier additions Alexander, Bennett & Assoc., Inc. was able to land two new audit clients in 2018: the aforementioned Dylan, Inc., and "Joseph & Joseph." One of the key reasons Alexander, Bennett & Assoc., Inc. was able to land Joseph & Joseph as an audit client was the close relationship between Joseph & Joseph's CEO and Henry Hudson. You see, Henry Hudson dated Joseph & Joseph's CEO, Mia Madison, in college. They eventually broke up, but Henry Hudson and Mia Madison stayed in regular contact. Henry Hudson, knowing Mia Madison so well, told Braxton Bennett that she loved football. Seizing on the opportunity and knowing that Joseph & Joseph was in the market for a new accounting firm, Braxton Bennett bought and sent Mia Madison season box seat tickets for next year's Los Angeles Charges home games. In the envelope to Mia Madison, Braxton Bennett wrote the following note: "Hope I can go with you sometime! Love, your friends at Alexander, Bennett & Associates." It worked like a charm, and the rest was history. Ava Alexander, Cara Connor, Ethan Easton, and Henry Hudson all began working on Joseph & Joseph's audits from then on. The timing of Dylan, Inc. becoming a client was also superb. Ava Alexander, Braxton Bennett, Cara Connor, Fiona Freya, and Ivy Iris would all eventually work on Dylan, Inc.'s audit team, but during Cara Connor's interview two (2) years earlier, Cara Connor informed Braxton Bennett of something very interesting. During that 2016 interview, Cara Connor told Braxton Bennett that Dylan, Inc. was just about to launch a drug that would cure Dengue Fever once and for all. Nobody else except Cara Connor and Owen Oliver knew the news at the time. Excitedly, Braxton Bennett told Ava Alexander about the new drug and its potential. Ava Alexander promptly told her on again-off-again romantic partner Neil Nova about the new drug and its potential. Thus, in 2016, Neil Nova bought $1,000 worth of Dylan, Inc. to add to his very modest retirement savings. As Alexander, Bennett & Assoc., Inc. prospered, Ethan Easton and Cara Connor were eventually made partners in 2019, but Fiona Freya and Grant Griffin never rose above the level of manager. But Grant Griffin was not left out in the cold. Grant Griffin was introduced to Mia Madison by Henry Hudson, the two fell in love, and Grant Griffin married Mia Madison (now Mia Griffin) in a small ceremony on a private Caribbean island in 2020. Inspired by their nuptials, Ava Alexander and Neil Nova tied the knot themselves on January 1, 2021.

QUESTIONS: 1) Identify all ethical issues faced by the following individuals, discuss the applicable rule(s) that govern their behavior for each issue, and analyze if they acted ethically or not: 

• Ava Alexander 

• Braxton Bennett

• Cara Connor 

• Ethan Easton 

• Neil Nova 

2) Does Alexander, Bennett & Assoc., Inc. have the independence to audit either Dylan, Inc. or Joseph & Joseph in 2021? Explain why or why not, making suggestions for any precautionary measures Alexander, Bennett & Assoc., Inc. might take if they continue auditing them in 2022.

Answer rating: 100% (QA)

1 Ethical Issue rules and Governing issues of behavior a Ava Alexander Ava Alexander did wrong ethically as she make her tagline I have never lost an IRS audit and also she never represent any client ... View the full answer