- Carrie Jones, CPA, performs various management services for The Perry Corporation including bookkeeping and preparing tax returns, but does not perform the audit function. One management service involved a needs assessment on computers and the identification of equipment to meet those needs. Jones recommended a product sold by a computer store, which has agreed to pay Jones a 10% commission if the Perry Company purchases it.
- Jonathan Keys, CPA, was overbooked for the next few months. When a prospective client asked if Keys would conduct the next year’s audit, he declined but referred them to Janet Rivera, CPA. Rivera paid Keys $5,000 for the referral.
- Katherine Porter, CPA, signed on to perform an inventory control study for a new client, River Forest Company. Once the study is complete, she recommends a new inventory control system. Currently, River Forest engages another audit firm to audit its financial statements. The financial arrangement is that River Forest will implement the new systems and over the next 10 years, they will pay Porter 60% of the savings in inventory costs.
- Thomas Caper, CPA, has served as the auditor for the Rover Corporation for many years. In addition, Caper has performed other services for the company. This year, the Chief Financial Officer has asked Caper to perform a major computer system evaluation.
- Due to the death of its CFO, an audit client had its external auditor, Sandra Richardson, CPA, perform the CFO’s job for two months until a replacement was hired.
Required:
Knowing the AICPA Code of Professional Conduct, answer the following:
- For each of the five scenarios, indicate which principle or rule would be violated, or if none would be violated.
- State why the rule would be violated.
- Explain if there is a way to avoid breaking the rule by doing something different in these examples.
Your written response paper should be 3-4 pages in length. Please type your assignment in a Word document and follow APA format, according to CSU Global Writing Center (Links to an external site.). Include a title page and reference page. Use two (2) outside academic sources other than the textbook, course materials, or other information provided as part of the course materials.
Requirements: 3-4 Pages Not Counting Title and Reference Pages
Answer preview
In scenario 1, Carrie Jones, CPA, performs management services such as bookkeeping and tax returns. This service does not go against a CPA’s code of conduct but could be a breach of the independence of the CPA if the company decides to ask them to perform the audit. An auditor cannot audit their work since it goes against the code of conduct (Jenkins et al., 2020). In addition, the CPA recommends a product sold by a third party and stands to gain a commission from the purchase. Suppose the CPA receives any indirect financial compensation from such purchase under the guise that they have performed services for a third party, thereby demanding a commission from them (Jenkins et al., 2020). In that case, the CPA will be in breach of professionalism and independence. However, the rule is not broken if the CPA were to fully disclose their financial gain from the purchase to the client (Jenkins et al., 2020).
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