The following situations involve Herb Standard, staff accountant with the regional accounting firm of Cash & Green:

1. The bookkeeper of Ethical Manufacturing Company resigned two months ago and has not yet been replaced. As a result, Ethical’s transactions have not been recorded and the books are not up to date. To comply with terms of a loan agreement, Ethical needs to prepare interim financial statements but cannot do so until the books are posted. Ethical looks to Cash & Green, its independent auditors, for help and wants to borrow Herb Standard to perform the work. Ethical wants Herb because he did its audit last year.

2. Herb Standard discovered that his client, Ethical Manufacturing Company, materially understated net income on last year’s tax return. Herb informs his supervisor about this and the client is asked to prepare an amended return. The client is unwilling to take corrective measures. Herb informs the Internal Revenue Service.

3. While observing the year-end inventory of Ethical Manufacturing Company, the plant manager offers Herb Standard a fishing rod, which Ethical manufactures, in appreciation for a job well done.

4. Herb Standard’s acquaintance, Joe Lender, is chief loan officer at Local Bank, an audit client of Cash & Green. Herb approaches Joe for an unsecured loan from Local Bank and Joe approves the loan.

5. Herb Standard is a member of a local investment club composed of college fraternity brothers. The club invests in listed stocks and is fairly active in trading. Last week the club purchased the stock of Leverage Corp., a client of another Cash & Green office. Herb has no contact with the members of this office.

Required

For each situation, (a) identify the ethical issues that are involved and (b) discuss whether there has or has not been any violation of ethical conduct. Support your answers by reference to the rules of the AICPA Code of Professional Conduct, available at the AICPA website (www.aicpa.org).