1.The following situations involve the provision of non-audit services. Indicate whether providing the service is a violation of AICPA rules or SEC rules including Sarbanes-Oxley requirements on independence. Explain your answer as necessary.
a. Providing bookkeeping services to a public company. The services were preapproved by the audit committee of the company.
b. Providing internal audit services to a public company that is not an audit client.
c. Designing and implementing a financial information system for a private company.
d. Recommending a tax shelter to a client that is publicly held. The services were preapproved by the audit committee.
e. Providing internal audit services to a public company audit client with the preapproval of the audit committee.
f. Providing bookkeeping services to an audit client that is a private company.
2.Each of the following situations involves a possible violation of the AICPA's Code of Professional Conduct. For each situation, state the applicable section of the rules of conduct and whether it is a violation.
a. Jose Martinez is a CPA, but not a partner, with 3 years of professional experience with Lyle and Lyle, CPAs. He owns 25 shares of stock in an audit client of the firm, but he does not take part in the audit of the client, and the amount of stock is not material in relation to his total wealth.
b. A non-audit client requests assistance of J. Bacon, CPA, in the installation of a local area network. Bacon had no experience in this type of work and no knowledge of the client's computer system, so he obtained assistance from a computer consultant. The consultant is not in the practice of public accounting, but Bacon is confident of his professional skills. Because of the highly technical nature of the work, Bacon is not able to review the consultant's work.
c. In preparing the personal tax returns for a client, Phyllis Allen, CPA, observed that the deductions for contributions and interest were unusually large. When she asked the client for backup information to support the deductions, she was told, "Ask me no questions, and I will tell you no lies." Allen completed the return on the basis of the information acquired from the client.
d. Sally Blanchard, CPA, serves as controller of a U.S. based company that has a significant portion of its operations in several South American countries. Certain government provisions in selected countries require the company to file financial statements based on international standards. Sally oversees the issuance of the company's financial statements and asserts that the statements are based on international financial accounting standards; however the standards she uses are not those issued by the International Accounting Standards Board.
e. Bill Wendal, CPA, set up a casualty and fire insurance agency to complement his auditing and tax services. He does not use his own name on anything pertaining to the insurance agency and has a highly competent manager, Frank Jones, who runs it. Wendal often requests Jones to review the adequacy of a client's insurance with management if it seems underinsured. He believes that he provides a valuable service to clients by informing them when they are underinsured.
f. Five small Chicago CPA firms have become involved in an information project by taking part in an inter firm working paper review program. Under the program, each firm designates two partners to review the audit files, including the tax returns and the financial statements of another CPA firm taking part in the program. At the end of each review, the auditors who prepared the working papers and the reviewers have a conference to discuss the strengths and weaknesses of the audit. They do not obtain authorization from the audit client before the review takes place.
g. James Thurgood, CPA, stayed longer than he should have at the annual Christmas party of Thurgood and Thurgood, CPAs. On his way home he drove through a red light and was stopped by a police officer, who observed that he was intoxicated. In a jury trial, Thurgood was found guilty of driving under the influence of alcohol. Because this was not his first offense, he was sentenced to 30 days in jail and his driver's license was revoked for 1 year.
h. Rankin, CPA, provides tax services, management advisory services, and bookkeeping services and conducts audits for the same nonpublic client. Because the firm is small, the same person often provides all the services.
Academic requirements:
• Your work must be submitted as pages 2-3 of pages
• Your work should be submitted in the formats outlined for each questionin the assignment.