Question

Each of the following situations involves possible violations of the AICPA Code of Professional Conduct. For each​ situation, state whether it is a violation of the Code. In those cases in which it is a​ violation, explain the nature of the violation and the rationale for the existing rule. LOADING...

a. The audit firm of Miller and​ Yancy, CPAs, has joined an association of other CPA firms across the country to enhance the types of professional services the firm can provide. Miller and Yancy share resources with other firms in the​ association, including audit​ methodologies, audit​ manuals, and common IT systems for billing and time reporting. One of the partners in Miller and Yancy has a direct financial interest in the audit client of another firm in the association.

b. Connor Bradley is the partner in charge of the audit of Southern Pinnacle Bank. Bradley is in the process of purchasing a beach condo and has obtained mortgage financing from Southern Pinnacle.

c. Jennifer​ Crowe's audit client has a material investment in​ Polex, Inc.​ Crowe's non-dependent parents also own shares in​ Polex, and Polex is not an attest client of​ Crowe's firm. The amount of her​ parent's ownership in Polex is not significant to​ Crowe's net worth.

d. Joe Stokely is a former partner in Bass and​ Sims, CPAs.​ Recently, he left the firm to become the chief operating officer of Lacy​ Foods, Inc., which is an audit client of Bass and Sims. In his new​ role, Stokely has no responsibilities for financial reporting. Bass and Sims made significant changes to the audit plan for the upcoming audit.

e. Odonnel Incorporated has struggled financially and has been unable to pay the audit fee to its​ auditor, Seale and​Seale, CPAs, for the 2014 and 2015 audits. Seale and Seale is currently planning the 2016 audit.

f. Jessica Alma has been serving as the senior auditor on the audit of Carolina​ BioHealth, Inc. Because of her outstanding​ work, the head of internal audit at Carolina BioHealth extended her an offer of employment to join the internal audit department as an audit manager. When the discussions with Carolina BioHealth​ began, Jessica informed her​ office's managing partner and was removed from the audit engagement.

g. Morris and​ Williams, a regional CPA​ firm, is providing information systems consulting to one of their publicly traded audit clients. They are assisting in the implementation of a new financial reporting system selected by management.

h. Audrey Glover is a financial analyst in the financial reporting department of Technologies​ International, a privately held corporation. Audrey was asked to prepare several journal entries for Technologies International related to transactions that have not yet occurred. The entries are reflected in financial statements that the company recently provided to the bank in connection with a loan outstanding due to the bank.

i. Austin and​ Houston, CPAs, is performing consulting services to help management of McAlister Global Services streamline its production operations. Austin and Houston structured the fee for this engagement to be a fixed percentage of costs savings that result once the new processes are implemented. Austin and Houston perform no other services for McAlister Global.

Answer 1

The AICPA Code of Professional Conduct violations relate to maintaining independence, integrity, and objectivity. Partners with direct financial interests, unpaid audit fees, and contingent fees pose potential violations. Scenarios with non-dependent family interests and appropriate removal from engagements do not violate the code.

Step-by-step explanation:

Regarding the scenarios involving the AICPA Code of Professional Conduct, they can be assessed as follows:

• Scenario (a) is a violation because a partner's direct financial interest in an audit client of another firm in the association can impair independence.
• Scenario (b), where an auditor obtains a mortgage from an audit client, is a violation since it creates a self-interest threat to independence.
• Scenario (c) is not a violation as non-dependent parental investments that are not significant to the auditor's net worth do not impair independence.
• Scenario (d), where a former partner of the audit firm becomes an officer of an audit client, may be a violation if the individual has influence over the audit contents, but the firm's changes to the audit plan could mitigate independence concerns.
• Scenario (e) indicates a potential violation due to the auditor potentially being beholden to the client for unpaid fees, which may impair independence.
• Scenario (f) is handled appropriately, with the auditor being removed from engagement upon starting employment discussions, avoiding violation.
• Scenario (g) could be a violation if the consulting services influence the financial information that the audit will rely on, thus potentially impairing independence.
• Scenario (h) involves unethical behaviour but does not pertain to the AICPA code unless Audrey Glover is a CPA bound by the code.
• Scenario (i), setting fees contingent on the result of consulting services for audit clients, is typically a violation as it may create a self-interest threat.

These rules exist to maintain the independence, integrity, and objectivity of CPA professionals, ensuring that they perform their duties without bias or a conflict of interest, safeguarding public interest.