Question

Each of the following situations involves a possible violation of the AICPA Code of Professional Conduct. For each situation, state the applicable rule of conduct and whether it is a violation. Emrich, CPA, provides tax services, management advisory services, and bookkeeping services and also conducts audits for the same nonpublic client. Because the firm is small, the same person often provides all the services. Steve Custer, CPA, set up a casualty and fire insurance agency to complement his auditing and tax services. He does not use his own name on anything pertaining to the insurance agency and has a highly competent manager, Jack Long, who runs it. Custer often requests Long to review the adequacy of a client’s insurance with management if it seems underinsured. He believes that he provides a valuable service to clients by informing them when they are underinsured. Seven small Seattle CPA firms have become involved in an information project by taking part in an interfirm working paper review program. Under the program, each firm designates two partners to review the audit files, including the tax returns and the financial statements, of another CPA firm taking part in the program. At the end of each review, the auditors who prepared the working papers and the reviewers have a conference to discuss the strengths and weaknesses of the audit. They do not obtain authorization from the audit client before the review takes place. Franz Marteens is a CPA, but not a partner, with three years of professional experience with Roberts and Batchelor, CPAs. He owns 25 shares of stock in an audit client of the firm, but he does not take part in the audit of the client, and the amount of stock is not material in relation to his total wealth.

Answer 1

a) Emrich, CPA, provides tax......

Answer :

Applicable rule-Rule 101- Independence.

AICPA Code of Professional Conduct is not violated in this case .

The independence of Emrich wouldn't be considered to be impaired if the services performed conform to the requirements of Interpretation 101-3. If the client were publicly held, there would be a violation of SEC rules.

b) Steve Custer, CPA, set up a casualty......

Answer :

Applicable rule-Rules 101 and 102 - Independence and Integrity and Objectivity.

AICPA Code of Professional Conduct is violated in this case .

The independence has been impaired by financial dealing of Steve Custer's agency with Steve's audit clients and participation in a business, which impairs Steve's objectivity. Also a conflict of duties arises when it comes to recommend his own firm to review the adequacy of the existing insurance coverage of existing clients.

c) Seven small Seatlle CPA......

Answer :

Applicable rule-Rule 301 - Confidential Client Information.

AICPA Code of Professional Conduct is violated in this case .  

Since the review wasn't part of an AICPA, state CPA society or Board of Accountancy review program, the client should have been notified that the review was to take place, and an attempt would've been made to obtain the client's permission for such review. Rule 301 was violated by the firm by not obtaining consent from the client for the review.

d) Franz Marteens is a CPA, but not a partner......

Answer :

Applicable rule-Rule 101 - Independence.

AICPA Code of Professional Conduct isn't violated in this case .

Franz isn't a partner and also he is not in the engagement team

for audit of the client.