1/29/08 Auditing Chapter 3 #33. A) The parties directly affected are the two companies involved. B ) Yes the other students are affected by his decision (his ethical decisions reflect ethics of all the students). C) Professors reputations are affected as well because of their ability to teach. D) Explain you incurred such expenses but only bill them for amount they're responsible for. If they both send you a check, send them both back and explain they're only responsible for their amount. #34 A) Mary is not a covered member because she's not in the Phoenix office but her judgment is impaired because she is married to Cameron. The firm's independence is not affected but the public may infer that the firm's independence is affected. Might have to discharge Cameron as a client. B) If Jim doesn't tell his son that he has the investment then Will's independence and the firm's independence are not affected. C) Bill is not a covered member. However he has impaired his own independence because he has a direct financial interest in the client. If he were assigned to this client he would have impaired independence. If his investment is > than 5% of outstanding stock, then the firms independence is impaired. D) Not considered to be a close relative since he's an Uncle. So independence is not impaired. Again, lack of independence in appearance is the issue. So do not assign her to the audit in order to maintain appearance of independence. S #35 A) Rule 501: Acts Discredible: Cannot hold records hostage. Must return accounting records if client has not paid. All other items are considered work product of the accountant. B) Assuming they've paid the fee you must return accounting records and adjusting entries because the adjustments are considered accounting records upon payment. You would NOT give client the work papers. #36 A) Rule 502: Advertising and Solicitation: Has not violated. Rule 505: Name of the organization. Has not violated name rule. Is not false, misleading, or deceptive. B) Rule 502: Is not initially false, misleading, or deceptive. But if the $50 off coupon is not literately a coupon then it would be misleading. (Example: Quote someone off the streets at
$100 but then someone brings in a coupon and they say usually charge they $150 but will only charge $100 with the coupon). C) Rule 302: Contingent fees: By reviewing the tax return he has the same knowledge as a tax preparer even though he has not been paid for it. If he finds a savings and signs the tax form, he has violated Rule 302. D) Rule 503: Commission and referral fees: He cannot perform an audit, attestation, review, or compellation and must disclose that he's issued a referral fee. The other CPA doesn't have a client so they have no one to disclose the information to. #37 A) This is more of an appearance problem than one of impaired independence. Not enough information to tell whether his independence is impaired. B) The partner's independence is impaired. However since he is a partner in an office that does not have engagement responsibility, the firm's independence is not impaired. However, if this was year 6 his independence is not impaired because he would not be auditing his own work. C) The manager's independence is impaired but since he is not a covered member the firm's independence is not impaired. But there may be an appearance of lack of independence. D) He's not considered a covered member since he's in a different office so the firm's independence would not be impaired but again, it may appear to not be independent. E) If the firm issues an audit opinion in year 5 then independence is impaired. If they do not issue an opinion, impendence is not impaired. #39 A) Neither is violating code of conduct. The 25% example is not violating because she does not audit the company. The flat fee of $30,000 does not violate either. B) This example violates because he is still auditing the company and therefore violates contingent fees. #42 A) Rule 505: Form organization and name. He can name it as such because it's not false, misleading, or deceptive. He must be > than 50% owner as a C.P.A. so he violated rule 505. Rule 202: Professional standards. He should have followed GAAS. The disclosures were not adequate and so he violated Rule 202. Rule 203: Accounting _____. He shouldn't have issued an unqualified opinion. He has also probably violated Rule 301: Client confidentiality by telling his partner. Rule 503: Commissions and referral fees may have been violated as well.