Knowledge of the rules of conduct and interpretations thereof on confidential client information and contingent fees will help you respond to the following cases.

Required:

For each case, state whether or not the action or situation shows violation of the ICAO rules of professional conduct, explain why, and cite the relevant rule or interpretation.

a. PA Sally Colt has discovered a way to eliminate most of the boring work of processing routine accounts receivable confirmations by contracting with the Cohen Mail Service. After the auditor has prepared the confirmations, Cohen will stuff them in envelopes, mail them, receive the return replies, open the replies and return them to Sally.

b. Cadentoe Corporation, without consulting its PA, has changed its accounting so that it is not in conformity with generally accepted accounting principles. During the regular audit engagement, the PA discovers that the statements based on the accounts are so grossly misleading that they might be considered fraudulent. PA Cramer resigns from the engagement after a heated argument. Cramer knows that the statements will be given to John Cairncross, his friend at the Last National Bank, and knows that John is not a very astute reader of complicated financial statements. Two days later, Cairncross calls Cramer and asks some general questions about Cadentoe’s statements and remarks favourably on the very thing that is misrepresented. Cramer corrects the erroneous analysis, and Cairncross is very much surprised.

c. A PA who had reached retirement age arranged for the sale of his practice to another public accountant. Their agreement called for the transfer of all working papers and business correspondence to the accountant purchasing the practice.

d. Martha Jacoby, PA, withdrew from the audit of Harvard Company after discovering irregularities in Harvard’s income tax returns. One week later, Ms. Jacoby was telephoned by Jake Henry, PA, who explained that he had just been retained by Harvard Company to replace Ms. Jacoby. Mr. Henry asked Ms. Jacoby why she withdrew from the Harvard engagement. She told him.

e. Amos Fiddle, PA, prepared an uncontested claim for a tax refund on Faddle Corporation’s amended tax return. The fee for the service was 30% of the amount that the Canada Revenue Agency rules to be a proper refund. The claim was for $300,000.

f. After Faddle had won a $200,000 refund and Fiddle collected the $60,000 fee, Jeremy Faddle, the president, invited Amos Fiddle to be the auditor for Faddle Corporation.