Ethical Issues. The following situation involves Kevin Smith, staff accountant with the local CPA firm of Hobb, Mary, and Khang (HM&K). The bookkeeper of Mirage Manufacturing Company resigned three months ago and has not yet been replaced. As a result, Mirage’s transactions have not been recorded and the books are not up to date. Mirage must prepare interim financial statements to comply with terms of a loan agreement, but cannot do so until the books are posted. To help them with this matter, Mirage turns to HM&K, their independent auditors. Mirage wants Kevin Smith to update their books because Kevin had audited them last year.

Required:

A. Identify the ethical issues that are involved.

B. Discuss whether there has or has not been any violation of ethical conduct.

(Written by Khang Tran, Mary Horton, and Hob Chen)