Each of the following scenarios involves a possible violation of the rules of conduct.
a. John Brown is a PA, but not a partner, with three years of professional experience with Lyle and Lyle, Public Accountants, a one-office public accounting firm. He owns 25 shares of stock in an audit client of the firm, but he does not take part in the audit of the client and the amount of stock is not material in relation to his total wealth.
b. In preparing the corporate tax returns for a client, Phyllis Allen, PA, observed that the deductions for contributions and interest were unusually large. When she asked the client for backup information to support the deductions, she was told, "Ask me no questions, and I will tell you no lies." Phyllis completed the return on the basis of the information acquired from the client.
c. A private entity audit client requested assistance of Kim Tanabe, PA, in the installation of a computer system for maintaining production records. Kim had no experience in this type of work and no knowledge of the client's production records, so she obtained assistance from a computer consultant. The consultant is not in the practice of public accounting, but Kim is confident in her professional skills. Because of the highly technical nature of the work, Kim is not able to review the consultant's work.
d. Five small Moncton public accounting firms have become involved with an information project by taking part in an inter firm working paper review program. Under the program, each firm designates two partner to review the working papers, including the tax returns and the financial statements, of another public accounting firm taking part in the program. At the end of each review, the auditors who prepared the working papers and the reviewers have a conference to discuss the strengths and weaknesses of the audit. They do not obtain the authorization from the audit client before the review takes place.
e. Roberta Hernandez, PA, serves as controller of a Canadian company that has a significant portion of its operations in several South American countries. Certain government provisions in selected countries require the company to file financial statements based on international standards. Roberta oversees the issuance of the company's financial statements and asserts that the statements are based on international financial accounting standards; however, the standards she uses are not those issued by the International Accounting Standards Board.
f. Bill Wendal, PA, set up a casualty and fire insurance agency to complement his auditing and tax services. He does not use his own name on anything pertaining to the insurance agency and has a highly competent manager, Renate Jones, who runs it. Bill frequently requests Renate to review with the management of an audit client the adequacy of the client's insurance if it seems underinsured. He feels that he provides a valuable service to clients by informing them when they are underinsured.
g. Michelle Rankin, PA, provides tax services, management advisory services, and bookkeeping services and conducts audits for the same private company client. She requires management to approve, in writing, transactions and journal entries. Since her firm is small, the same person frequently provides all the services.
REQUIRED
Indicate whether each is a violation and explain why you think it is or is not.