Question 2

Stephen is a member of the investigation committee of a professional accounting body which has ethical rules similar to those of the Hong Kong Institute of Certified Public Accountants. As such a member, he has to advise professional accountants on ethical issues and to analyze cases of complaints against professional accountants for misconduct. Below are four cases that need decision.

Member R

Member R has been in charge of auditing client J for ten years. He is very familiar with the clients operation and the industry in which J operates. He becomes a good friend of the CEO of X due to the long engagement. The governing body of Rs firm considers to replace R with R2 under the new rotation policy but hesitates to do so because R2 needs to learn things anew.

Member S

Member S is the auditor of client K for several years. His audit team recommended Y to upgrade the accounting information system (AIS) last year. The CEO of K considers that S could also help in providing the AIS service because S has expertise in the area. The IT team of S finished upgrading Ks AIS before audit work is completed.

Member T

Company L is a large company, specializing in road work. Its auditor has just resigned without matters of disagreement. The CFO of L proposes to hire the audit firm of member T who is a partner. Both L and T hire advertising company A for preparing promotional materials and other image-building services.

Member U

Member U is the auditor of client M. He also provides tax services for M. The tax team works independently of the audit team. A new recruit of the tax team is a close relative of the CFO of M. Therefore, U reallocates the new recruit to other clients.

Required:Discuss whether the above members have violated the ethical standards of the professional accounting body to which Stephen is a member of the investigation committee.