The Detroit accounting firm of Norman, Braver- man, Potvin, and Benjamin, CPAs, has always had a cordial, but frequently contentious, relationship with its publicly traded audit client, Jay-Scott, Inc. Jay-Scott sells beverages and must collect a refund- able deposit on every glass bottle and aluminum can sold. Lately, for instance, this audit client angrily accused the firm of “sabotage” for failing to allow it to record a portion of these refundable deposit collections as revenue transactions in the year of collection. According to the management of Jay-Scott, statistics prove that 20% of all deposits will be claimed by customers, and therefore, the forfeited deposits constitute immediate revenue.
Jay-Scott, Inc. retains this accounting firm annually to perform both tax preparation services and its audit. When the CPA firm informed Jay-Scott that its fee for tax services was going to increase by 4% during the upcoming year, Warren Harris, the CEO of Jay-Scott, said, “That’s not being fair to you. You work hard, so let’s up that to a 30% increase.” Did this client violate SOX?
Ans. The Detroit accounting firm of Norman, Braver- man, Potvin, and Benjamin, CPAs, has always had a cordial, but frequently contentious, relationship with its publicly traded audit client, Jay-Scott, Inc. Jay-Scott sells beverages and must collect a refund- able deposit on every glass bottle and aluminum can sold. Lately, for instance, this audit client angrily accused the firm of “sabotage” for failing to allow it to record a portion of these refundable deposit collections as revenue transactions in the year of collection. According to the management of Jay-Scott, statistics prove that 20% of all deposits will be claimed by customers, and therefore, the forfeited deposits constitute immediate revenue.
Jay-Scott, Inc. retains this accounting firm annually to perform both tax preparation services and its audit. When the CPA firm informed Jay-Scott that its fee for tax services was going to increase by 4% during the upcoming year, Warren Harris, the CEO of Jay-Scott, said, “That’s not being fair to you. You work hard, so let’s up that to a 30% increase.”
Looking at the above scenario, the client is violating SOX beacause of the following reasons:
(i) Failure to record revenue
(ii) Same firm performing both tax preparation services and its audit
(iii) Increasing cost to reduce tax implication
The Detroit accounting firm of Norman, Braver- man, Potvin, and Benjamin, CPAs, has always had a...
The Detroit accounting firm of Norman, Braver- man, Potvin, and Benjamin, CPAs, has always had a cordial, but frequently contentious, relationship with its publicly traded audit client, Jay-Scott, Inc. Jay-Scott sells beverages and must collect a refund- able deposit on every glass bottle and aluminum can sold. Lately, for instance, this audit client angrily accused the firm of “sabotage” for failing to allow it to record a portion of these refundable deposit collections as revenue transactions in the year of...
The Detroit accounting firm of Norman, Braverman, Potvin, and Benjamin, CPAs, has always had a cordial, but frequently contentious, relationship with its publicly traded audit client, Jay-Scott, Inc. Jay-Scott sells beverages and must collect a refundable deposit on every glass bottle and aluminum can sold. Lately, for instance, this audit client angrily accused the firm of “sabotage” for failing to allow it to record a portion of these refundable deposit collections as revenue transactions in the year of collection. According...