4-17
4-27 (continued)
failure to follow the rules of conduct can result in expulsion from the
AICPA, an investigation by the AICPA Professional Ethics Division,
a requirement to remediate the problem (e.g., complete continuing
education), or other sanctions. State Boards of Accountancy have
PCAOB regulations.
d. Section 1.600.030 describes how to refer to an AICPA-awarded
specialty designation. A member may use the designation after
Cases
increase the value of the case.
1. Elbert’s wife’s employment would not result in an independence
independence violation since Elbert is a staff accountant and is not
clients.
2. Advertising is permitted as long as it is not false, misleading, or
deceptive. The advertising expressly states two facts: 14 of 36 of
violation. However, it may be difficult to support the comparison to
the fees of other firms.
4-18
4-28 (continued)
3. Contingent fee arrangements between the CPA and the client are a
public authorities or, in tax matters, if determined based on the
therefore there is no violation.
4. This would be considered a violation of the Independence Rule as
the audit client in a key position has an association or appearance
of association with the audit firm.
5. According to an interpretation of the Independence Rule,
possible that Able and Marshall are unaware of this joint closely
6. It is essential that Finigan retain both an attitude of independence in
mind and in appearance. It is not possible to determine if Finigan is
maintaining an attitude of independence in fact, given her involvement
It is questionable whether Finigan is maintaining an attitude
of independence in appearance, especially given the comments by
Gilligan. It is essential that she maintain an attitude of independence
throughout all her work. So she must be careful that she is not on
4-19
4-29 a. It’s an ethical dilemma for Barbara because she has a decision to
make about what behavior is appropriate. If she throws the
b. 1. Relevant facts: A number of misstatements were discovered.
The aggregate amount of all discovered and undiscovered
2. Ethical issues: Is it ethical to throw away the schedules
3. Who is affected and how?
WHO IS AFFECTED?
HOW?
Barbara
1. Being asked to ignore misstatements is a possible
violation of the Integrity and Objectivity Rule.
2. Performance evaluation may be affected.
3. Future with firm may be affected.
Jack
1. Future with firm may be affected.
2. Performance evaluation may be affected.
Green, Thresher & Co.,
CPAs
1. If audit is completed late, they may lose the
engagement.
2. May be sued if material misstatements are not
detected.
3. Client may be unhappy with auditor if misstatements
are subsequently discovered.
Delancey Fabrics
1. May not have opportunity to correct misstatements if
they are not brought to light.
2. May be required to adjust financial statements if
misstatements exist.
4. Alternatives
(a) Throw away schedules.
(d) Refuse to work on the engagement.
(e) Quit the firm.
5. Consequences
(a) The misstatements may be discovered subsequently
4-20
4-29 (continued)
may get an unfavorable review.
(c) If she talks to the manager or partner, they may
admire Barbara’s attempt to be ethical, or they may
as “hard to get along with.”
(e) If she quits, she will likely miss out on some potentially
valuable experiences in public accounting.
6. Appropriate Action
Only Barbara can decide. One reasonable approach
is for Barbara to start by discussing the matter further with
Jack. She should listen carefully to his reasoning and express
her reservations about throwing the schedules away. She
4-30 1. Relevant Facts:
a. One of Ann Donnelly’s audit engagements has been selected
for a PCAOB inspection.
b. Ann has been asked by the engagement partner to add a
backdated document to the working papers and ensure
2. Ethical issue: Is it ethical for Ann to alter the working papers for the
WHO IS AFFECTED?
HOW?
Ann
1. Promotion, future pay, and ability to meet personal
financial obligations may be affected.
2. She may face penalties if a deficiency is identified
in a PCAOB inspection.
3. She may face penalties if she alters the working
papers and the violation is discovered.
4-30 (continued)
WHO IS AFFECTED?
HOW?
Partner
1. Promotion, future pay, and ability to meet personal
financial obligations may be affected.
2. He may face penalties if a deficiency is identified in
a PCAOB inspection.
3. He may face penalties if the working papers are
altered and the violation is discovered.
The audit firm and the local
office
1. The audit firm, particularly the local office, may
suffer penalties due to a lack of proper controls
and supervision, if it is discovered the working
papers were altered in violation of PCAOB
standards.
Other engagement personnel
b. The inspection process impacts all engagement
personnel and they did not have any input in this
decision.
c. If the alteration of working papers is discovered,
other engagement personnel will be questioned
and possibly implicated in the PCAOB violation.
4. Alternatives:
a. Alter the working papers as requested by the partner.
accordance with PCAOB standards.
c. Refuse to alter the working papers and accept the
5. Consequences:
consequences.
b. If she updates the working papers but ensures she is in
compliance with PCAOB standards, an audit deficiency may
identification of an audit deficiency.
d. If Ann informs the office managing partner of the
engagement partner’s request, she may be labeled as
4-22
4-30 (continued)
6. Appropriate action:
if not all, of the other partners in the firm would probably appreciate
Ann’s willingness to express her opinion regarding the
inappropriateness of the engagement partner’s request.