The following are situations that may violate the AICPA Code of Professional Conduct. Assume, in each case, that the CPA is a partner, unless stated otherwise.
1. Elbert is a staff accountant at a CPA firm. Elbert’s wife works in human resources at
one of the clients audited by Elbert’s firm, although Elbert is not on the audit engage-
ment. As part of an employee stock ownership program at her company, Elbert’s wife
receives shares of stock in her company.
2. Contel, CPA, advertises in the local paper that his firm does the audit of 14 of the 36
largest community banks in the state. The advertisement also states that the average
audit fee, as a percentage of total assets for the banks he audits, is lower than any other CPA firm’s in the state.
3. Baker, CPA, approaches a new audit client and tells the president that he has an idea
that could result in a substantial tax refund in the prior year’s tax return by appli-
cation of a technical provision in the tax law that the client had overlooked. Baker
adds that the fee will be 50 percent of the tax refund after it has been resolved by the
Internal Revenue Service. The client agrees to the proposal.
4. Jon Davis is a former partner at Davis, Harrison, Smith. He left the firm to work for
an audit client of DHS. Since Davis was the only expert in the firm on not-for-profit
clients, DHS pays him as a consultant when they have questions related to their not-
for-profit audit engagements.
5. Able, CPA, owns a substantial limited partnership interest in an apartment building.
Frederick Marshall is a 100 percent owner in Marshall Marine Co. Marshall also owns
a substantial interest in the same limited partnership as Able. Able does the audit of
Marshall Marine Co.
6. Finigan, CPA, does the audit, tax return, bookkeeping, and management services work
for Gilligan Construction Company. Mildred Gilligan follows the practice of calling
Finigan before she makes any major business decision to determine the effect on her
company’s taxes and the financial statements. Finigan attends continuing education
courses in the construction industry to make sure that she is technically competent
and knowledgeable about the industry. Finigan normally attends board of directors
meetings and accompanies Gilligan when she is seeking loans. Mildred Gilligan often
jokingly introduces Finigan with this statement, “I have my three business partners—
my banker, the government, and my CPA, but Finny’s the only one that is on my side.”
Discuss whether the facts in any of the situations indicate violations of the AICPA Code of Professional Conduct. If so, identify the nature of the violation(s).
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