Part 4.Ethics: Compilation

Facts:

A Chicago area manufacturing company ("JKL") has 2 unrelated owners.The CPA firm ("Flexible") for the manufacturing company prepares annual compiled financial statements and corporate tax returns (1120S).In addition, Flexible prepares the personal income tax returns for one of the owners - a different tax accountant prepares the personal income tax returns for the other owner.The Company has a December 31^st year end.

Toward the end of February each year, there is an annual meeting in the western suburbs, with the following in attendance:the 2 owners of JKL, Flexible's CPA Partner, the tax accountant for the other owner, and pension consultants.

In anticipation of the meeting, Flexible prepares and distributes draft financial statements, and a year to date General Ledger; everything is complete except the amount of any pension accrual and the final amount of inventory.

The purposes of the meeting are to determine:

1.the pension accrual

2.the desired taxable income for the year

3.the amount of inventory necessary to bring taxable income to the desired level (achieved through a debit or credit to inventory with an offsetting debit or credit to cost of goods sold).

Required:For the situation described above, please answer the following two questions:

1.What are the business ethical issues?

2.What are the professional ethical issues for Flexible's CPA Partner?