Gary James works for Hills & beans, a professional services firm. James was a onetime business partner of former Florida State Senator Howard Clark and a donor to his campaign. Clark was recently charged with conspiring to defraud the IRS out of hundreds of thousands of dollars during the time James prepared tax returns for Clarks business. The allegation is that Clark misclassified $2,268,520 as business expense, when the money went to his childrens tuition, a trip to Turks and Caicos Islands, home remodeling, and more. The amount of taxes Clarks business owed for these deductions was $850,748, but only $56,766 was paid. The IRS is preparing charges against James for his role in the matter.

a. Discuss the ethics violations that may have been committed by James with respect of the AICPA Code discussed in chapter 4.

b. Assume you are the director of auditing for Hills & Beans and Clark approaches you requesting that your firm audit the financial statements of his business and prepare a report that would be submitted along with a loan of $1 million for his business.How might the facts of this case influence whether you agree to provide the audit service?