Case Questions

Daniel Doyle begins to prepare for his firms brainstorming/planning session regarding the

audit of Mark Martins branch. Recognizing Mark Martins role as executive director of the local

branch of the national charitable organization, the significant cash contributions that result from the

branchs fundraising efforts, and Martins significant personal gambling losses, Daniel cannot help

but think about the risk of fraud posed by Martins gambling losses.

1. Define fraud.

2. What are the three components of the fraud triangle?

3. Is gambling an incentive/pressure?

4. Is gambling different from a gambling addiction?

5. Can incentive/pressure alone create a material risk of fraud?

6. Does the executive directors involvement with gambling impact Doyles audit?

7. Must Doyle disclose his knowledge of the gambling activity during his firms

brainstorming/planning session for the audit?

In addition to his concerns regarding the risk of fraud, Doyle also recognizes that his role as

Martins income tax preparer presents issues of confidentiality.

8. What is confidential client information?

9. What procedure must Doyle undertake, as a CPA, prior to disclosing confidential client

information?

10. As a tax professional and CPA, does Doyle violate Martins confidentiality if he uses

information obtained in preparing Martins personal income tax return when planning the

audit of the local charity branch?

11. As an auditor, is Doyle required to communicate his knowledge of Martins personal

gambling activity to the local branchs board of directors?

12. Can Doyle disclose an individuals confidential personal information to a business entity

client without that individuals consent?

13. Should Doyle consult legal counsel?

14. If Doyle chooses to keep his knowledge of the executive directors gambling activity

confidential and the audited financial statements are subsequently found to be fraudulent,

can Doyle support his compliance with AU-C Section 240?

15. If Doyle chooses to violate Martins confidentiality rights and share his knowledge with the

board of directors and the board of directors chooses to terminate Martin as the executive

director as a result of this information, how might Doyle stand as a defendant in a

personal lawsuit brought against him by Martin for lost wages and personal damages?

Doyle knows that violations of the Regulations Governing Professional Practice Before the

IRS and the CPA professional standards can result in sanctions. He reflects on his dual role as a

tax preparer and an auditor, and thinks about how to handle the situation.

16. Since the AICPA is a voluntary membership organization, what sanctions can the AICPA

impose on members who violate the Code of Professional Conduct?

17. What sanctions are assessed against a tax preparer who willfully violates a taxpayers

confidentiality rights?

18. Can Doyle prepare Martins personal tax return and also serve as auditor of Martins

branch? Does this dual relationship pose a significant threat to independence?

19. Can Doyle simply resign from the engagement? What should Doyle tell the board of

directors when they inquire as to why? What should Doyle tell the successor auditor?

20. How should Doyle respond to this situation? Why should he respond in this way? What

are the ramifications of his decision?