Judy Hanlon, CPA, is engaged to prepare the federal income tax return for the Guild Corporation for the year ended December 31, 1999, Hanlon's first engagement of any kind for the Guild Corporation. In preparing the 1999 return, Hanlon finds an error on the 1998 return: Accumulated Depreciation brought forward from 1997 to 1998 was understated and, therefore, the 1997 base for declining balance depreciation was overstated, causing 1998 depreciation to be overstated significantly.

Hanlon reports the error to Guild's controller, the officer responsible for tax returns.

The controller says: "Let the revenue agent find the error," and further instructs Hanlon to carry forward the material overstatement of the depreciable base to the 1999 depreciation computation. The controller notes that this error also had been made in the financial records for 1998 and 1999 and offers to furnish Hanlon with a letter assuming full responsibility for this treatment.

Required:

1. Evaluate Hanlon's action in this situation.

2. Discuss the additional action that Hanlon should now undertake.