Question

Accoutning Ethics:

Graywall, CPA, serves as a trustee of the CureCancerNow Foundation, a charitable foundation that is dedicated to cancer research activities. For years, he has been the loyal friend and advisor to Adolpho Rabin. In fact, Adolpho made a fortune as the founder of an apparel manufacturing corporation. After his mother died of cancer, Adolpho Rabin asked Graywall for advice about how he could meaningfully preserve the memory of his mother. Shortly after attending the funeral for Adolpho's mother, Graywall persuaded Adolpho to designate the CureCancerNow Foundation as one of several beneficiaries of his will, along with Adolpho's grown children and two grandchildren. Adolpho's will also provides that the executor may redirect more money to Adolpho's “offspring and their offspring if needed to facilitate their medical care, education, or critical life needs.” Adolpho also designated Graywall to be the executor of his estate. Does Graywall satisfy the Independence Rule to audit the charitable foundation? Did Graywall have a conflict of interest when he advised Adolpho to designate the CureCancerNow Foundation as one of his estate beneficiaries? Does Graywall have a conflict of interest in serving as the executor of Adolpho's estate?

Answer 1

1.

In the performance of professional services requiring independence, a member should consult his or her state board of public accountancy, his or her state CPA society if applicable, the Independence Standards Board if the client is a registrant of the U.S. Securities and Exchange Commission, the U.S. Department of Labor (DOL) if the client or the client's sponsor is required to report to the DOL, and any other regulatory or private organization that issues or enforces standards of independence. Such bodies may have independence interpretations or rulings that significantly differ from and are more restrictive than those of the AICPA.

2.

Serving in a fiduciary role may give rise to conflicts of interest. Consider a CPA firm that provides estate planning services to a client which results in the creation of a trust. If the firm receives a referral fee in connection with the sale of a life insurance policy purchased as part of the estate plan, or a firm member is designated as trustee, was the planning in the client’s best interest, or could these relationships be viewed as impairing the objectivity of the CPA rendering services? Similarly, if a trustee hires its own CPA firm to provide professional services to the trust, this action may be considered as impairing objectivity.

3.

A fiduciary’s relationship with estate or trust beneficiaries also may create conflicts. For example, if the CPA acting as a fiduciary renders professional services for some of the beneficiaries, potential conflicts may arise. Likewise, if the CPA serves as co-trustee with a beneficiary, and a dispute arises among the beneficiaries, the other beneficiaries may allege the CPA was responsible for monitoring the co-trustee’s actions and preventing them from making decisions detrimental to their interests.