Professional Accountants in Public Practice. Galati and Brambila formed a corporation called Financial Fitness Systems, each woman taking 50 percent of the authorized common stock. Galati is a Dottore Commercialista (CONSOB), a public accountant, and Brambila is an insurance underwriter. The corporation provides auditing and tax services under Galati’s direction and insurance services under Branbila’s direction. The opening of the corporation’s office was announced by a 15 cm, two-column announcement in the local newspaper.

One of the corporation’s first audit clients was the Galore Company. Galore had total assets of i923,820 and total liabilities of i415,719. In the course of her examination, Galati found that Galore’s building with a book value of i369,528 was pledged as security for a ten-year term note in the amount of i307,940. Galore’s statements did not mention that the building was pledged as security for the ten-year term note. However, as the failure to disclose the lien did not affect either the value of the assets or the amount of the liabilities and her examination was satisfactory in all other respects, Galati rendered an unqualified opinion on Galore’s financial statements. About two months after the date of her opinion, Galati learned that an insurance company was planning to loan Galore i230,955 in the form of a first mortgage note on the building. Galati had Brambila notify the insurance company of the fact that Galore’s building was pledged as security for the term note.

Shortly after the events described above, Galati was charged with a violation of professional ethics.

Required:

Identify and discuss the ethical implications of those acts by Galati that were in violation of IFAC’s Code of Ethics for Professional Accountants.