During the course of obtaining an understanding of a client’s internal control structure, Mr. Inves, CPA, discovered that, in a number of instances, the pertinent information had not been posted from sales invoices to the customer ledger accounts. On inquiring about this situation, Mr. Inves was told by the controller that the posting had not been done because of a temporary shortage of personnel. The controller suggested that Mr. Inves complete the posting himself, because 90 percent of it was already done.

Mr. Inves decided to follow this suggestion to expedite the audit. He completed the posting and balancing of the accounts receivable control account to the total of the customer ledger accounts. Mr. Inves considered the possibility of mentioning the posting deficiency as a reportable condition in a letter to the audit committee, but he decided against reporting it because he considered it a minor matter and the client’s shortage of personnel was the reason for the deficiency.

Required:

a. What are the four conditions under which the AICPA approves bookkeeping services and audit services for the same client? (Refer to the rule on independence in Chapter 3.)

b. Do you think that Mr. Inves violated the AICPA Code of Conduct? Why or why not?

c. Do you think that Mr. Inves followed the right course of action in not reporting the posting inadequacy to the audit committee? What would your answer be if Mr. Inves issued a letter to the controller describing the posting inadequacy?