You own your own CPA firm

You have a new client

Medium size business

You signed 5 year audit contract worth $500,000 annually

Have 3-4 other CPAs to help with your audit and opinion. (Your classmates)

Contract has a completion date with penalties if not met.

Business is manufacturing with several subsidiaries

Audit goes well for first year and you issue unqualified opinion.

Bonuses to all 3-4 CPAs on team

You just bought a new home and are expecting a new child soon. Spouse quits work as this client is a gold mine with extra services, etc.

Previous CPA firm lost contract for audit. No major issues with previous CPA firm.

New entity appears on bank records in 2nd year with substantial income. New entity appears to be the illegal activity we discussed in class.

Answer the following question in detail. And use some codes or sources to prove you opinion.

1. What steps are you required to take as a licensed CPA?

2. Do you continue with the audit if you are under contract?

3. Do you report the illegal activity?

4. What is your liability if you do not report the illegal activity to th proper authorities?

5. How do you personal ethics come into play here?