Question

Bell Manufacturing, Inc. is a publicly traded company that produces consumer goods for sale, primarily to wholesalers. The company hired your accounting firm, Hogue & Company, more than three years ago under both auditing and consulting engagements to assist with its initial public offering of common stock under the 1933 Securities Act. Hogue & Company is among the 12 largest accounting firms in the United States. It has developed a respectable reputation regarding its ability to help growing companies go public. You are currently an audit manager for Hogue & Company, having been promoted to this position from senior auditor in the last year, due in large part to your successful handling of the Bell Manufacturing account. You have just returned from lunch with Jay Hoffman, the new chief financial officer (CFO) for Bell Manufacturing, Inc. The purpose of the meeting was to congratulate Hoffman on his recent promotion. You have known Hoffman since you were assigned to this engagement, during which time he has progressed from accounting manager to chief accountant and now to his current position. When you expressed how pleased you were about his promotion, Hoffman explained how proud he was of the accomplishments he has achieved since entering the country as an illegal alien. He then told you that he entered the U.S. illegally because, at the time, that was the only way he could get into this country. He was quick to explain that he has been a U.S. citizen for almost three years and asked that you keep this in confidence. In connection with your audit of executive payroll, you pulled Hoffman’s personnel file, along with those of all senior executives of Bell. After the lunch meeting with Hoffman, you reviewed the contents of his personnel file. As required by federal law, a Form I-9, Employment Eligibility Verification, from the U.S. Immigration and Naturalization Service, was included in his personnel record. Hoffman completed and signed the form in 1992 at the commencement of his initial employment with Bell Manufacturing. He checked the box indicating he was a citizen of the United States and signed the form, attesting under the penalty of perjury that he had made no false statements or used false documents in connection with the completion of the form. Hoffman’s I-9 Form, along with the official instructions for completion, is presented as Attachment 1. Since 1986, federal law has required all newly hired employees (citizens and noncitizens) to complete and sign Section 1 of Form I-9. Federal law also establishes that the employer is responsible for ensuring that Section 1 is timely and properly completed. Employers must then complete and sign Section 2 of the form. This process requires employers to examine evidence of employee identity and employment eligibility within three business days of the date employment begins. The employee must present specific acceptable documentation to verify identity and employment eligibility, for example, a U.S. Passport or Certificate of U.S. Citizenship. A complete list of acceptable documentation is provided on page three of Form I-9 (see Attachment 1). To your surprise, Bell Manufacturing never completed Section 2 of Hoffman’s form.

PLEASE DON'T ANSWER IF YOU AREN'T GOING TO ANSWER THE QUESTION!!!

Please use the AICPA Code

1. As part of your duties as the auditor, should you contact the audit committee about the CFO’s act? Support your answer by researching and discussing guidance provided in the authoritative literature. As a hint, first consider the general guidance provided by the AICPA Code of Professional Conduct (AICPA 1997 updated AICPA 2014) and Statement on Auditing Standards No. 54 (AICPA 1988; updated AS 2405). More specific guidance can be found by examining the Private Securities Litigation Reform Act (1995) and the Sarbanes-Oxley Act of 2002.

Answer 1

The AICPA Code of Conduct is based on six principles; (1) responsibilities (2) serve the public interest (3) integrity (4) objectivity and independence (5) due care and (6) scope and nature of services.Auditor should above through out the conduct of audit.

As per SAS no:54, Illegal Acts by clients:

Audit Procedures in Response to Possible Illegal Acts
When the auditor becomes aware of information concerning a possible illegal act, the auditor should obtain an understanding of the nature of the act, the circumstances in which it occurred, and sufficient other information to eval- uate the effect on the financial statements. In doing so, the auditor should in- quire of management at a level above those involved, if possible. If management does not provide satisfactory information that there has been no illegal act, the auditor should—

a. Examine supporting documents, such as invoices, canceled checks, and agreements and compare with accounting records.
b. Confirm significant information concerning the matter with the other party to the transaction or with intermediaries, such as banks or lawyers.
c. Determine whether the transaction has been properly authorized.
d. Consider whether other similar transactions or events may have occurred, and apply procedures to identify them.

The Auditor’s Response to Detected Illegal Acts
When the auditor concludes, based on information obtained and, if necessary, consultation with legal counsel, that an illegal act has or is likely to have occurred, the auditor should consider the effect on the financial statements as well as the implications for other aspects of the audit.

The Auditor’s Consideration of Financial Statement Effect
In evaluating the materiality of an illegal act that comes to his at- tention, the auditor should consider both the quantitative and qualitative ma- teriality of the act. For example, section 312, Audit Risk and Materiality in Conducting an Audit, paragraph .59, states that "an illegal payment of an oth- erwise immaterial amount could be material if there is a reasonable possibility that it could lead to a material contingent liability or a material loss of rev- enue." [Revised, March 2006, to reflect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 107.]

The auditor should consider the effect of an illegal act on the amounts presented in financial statements including contingent monetary effects, such as fines, penalties and damages. Loss contingencies resulting from illegal acts that may be required to be disclosed should be evaluated in the same manner as other loss contingencies. Examples of loss contingencies that may arise from an illegal act are: threat of expropriation of assets, enforced discontinuance of operations in another country, and litigation.
The auditor should evaluate the adequacy of disclosure in the financial statements of the potential effects of an illegal act on the entity's operations. If material revenue or earnings are derived from transactions involving illegal acts, or if illegal acts create significant unusual risks associated with material revenue or earnings, such as loss of a significant business relationship, that information should be considered for disclosure.
Consult with the client's legal counsel or other specialists about the application of relevant laws and regulations to the circumstances and the possible effects on the financial statements. Arrangements for such consultation with client's legal counsel should be made by the client.
Apply additional procedures, if necessary, to obtain further under- standing of the nature of the acts.
The additional audit procedures considered necessary, if any, might.

Conclusion

Auditor should contact audit committee about the act of CFO, else it will leads to professional misconduct on part of auditor.