Question

Situation No. 3. Continued A. Independence--No Violation B. Independence - Violation L. Contingent Fees. -No Violation J. Contingent Fees - Violation C. Integrity and Objectivity. -No Violation K. Acts Discreditable--No Violation D. Integrity and Objectivity--Violation L. Acts Discreditable..Violation E Accounting Principle. No Violation F. Accounting Principle--Violation M. Advertising and Solicitation-No Violation N. Advertising and Solicitation--Violation G. Confidential Client Inf. -No Violation H. Confidential Client Inf... Violation 0. Commissions and Referrals-No Violation P. Commissions and Referrals-Violation 6. Fryson, CPA, is a partner in the firm Thompson and Cunningham, CPAs. Fryson's spouse is on the board of directors of Peace Corporation, an audit client of Thompson and Washington. Fryson does not participate on this audit engagement 7. Galice Lorenzo, CPA has disclosed client information as part of an ethics violation for a state board of accountancy investigation. 8. Miller, CPA, performs investment advisory services for an audit client and receives an annual fee based on a percentage of the value of the client's investment portfolio at the end of each year. 9. Reyes, CPA, is the auditor of Peace Hall Corporation. Reyes received a 10% commission from Albany Computer Systems for hardware/software sold to Peace Hall. The sale was made based on Reyes' recommendation that Peace Hall needed a new accounting information system. Reyes disclosed the commission to Peace Hall management. Reyes also performs the annual audit of Peace Hall Corporation. __10. Wong, CPA, a partner in Thompson and Cunningham, CPAs, hold the position of honorary director for the Friends of ASU, a firm audit client.

Answer 1

6. D - Integrity and objectivity - violation : As per the Integrity and objectivity rule, not just the member, even the member's firm shouldn't provide professional service to Thompson and Washington because there is a conflict of interest to the member with this client.

7. H - Confidential client info. - violation : CPA can disclose only after taking the consent of client. In this case, Galice Lorenzo didn't take consent from client.

8. I - Contingent fee - No violation : Miller, CPA has not violated the Contingent rule assuming the specified percentage is already defined and is not frequently changed more than once in a quarter.

9. P - Commissions and Referrals - violation : A member cannot advertise or recommend the product supplied by his audit client for a commission. In current scenario, Reyes has recommended the product of his audit client to Albany Computer systems and received commission from them which is violation of Commissions and Referrals rule.

10. D - Integrity and objectivity - violation : This is clearly violation of Integrity and objectivity rule because the member of the firm is holding the position of audit client which conflicts his interest in the audit. Hence, Thompson and Cunningham, CPAs, shouldn't take up the audit of the company Friends of ASU.