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In: Accounting

CH 4- These situations involve a possible violation of the AICPA's Code of Professional Conduct. (1)...

CH 4- These situations involve a possible violation of the AICPA's Code of Professional Conduct. (1) determine the applicable rule from the Code (2) decide if the Code had been violated (3) explain how the situation violates (or does not violate) the Code.

a. In 2017, Jones and Bachs, both CPAs, decided to form a CPA practice. In 2018, Jones and Bachs approached Bob Dill, a physician and medical expert, and asked him to assist them with their growing medical consulting practice. Dill agreed, but only after he was given an ownership interest in the firm. Dill does not intend to quit his private medical practice.

(1 ) Rule: ________                           (2) Violation? Yes   No

(3) Explanation:

b. Bob Paddy has a successful dentistry practice in Chicago. Bob has recommended one of his patients to Olive Oil, CPA. To show gratitude for the referral, Olive has agreed to pay Bob a token gift of $50. Olive discloses the payment arrangement to her new clients.

Rule: ________                                 Violation? Yes   No

Explanation:

c. The accounting firm of Page & Book, CPAs, is negotiating a fee with a new audit client. They agree the client will pay $50,000 if Page & Book issues a clean, unmodified opinion, $40,000 if a qualified opinion is issued, and only $20,000 if an adverse opinion is issued.

Rule: ________                                 Violation? Yes   No

Explanation:

d. Dilbert Cook, CPA, is a member of the engagement team that performs the audit of Hannaford Corporation. Dilbert's five-year-old daughter, Penelope, received ten shares of Hannaford Corporation's common stock for her sixth birthday. The stock was a gift from Penelope's grammy Grinch.

Rule: ________                                 Violation? Yes   No

Explanation:

e. Ben Look, CPA, is a partner in the CPA firm that audits Bright, Inc., a closely held corporation. Ben's sister-in-law is the chief financial officer at Bright, Inc.

Rule: ________                                 Violation? Yes   No

Explanation:

Solutions

Expert Solution

a. There is a Violation of the Rule on Form of Organization and Name.

Non-CPA ownership of firms is allowable but non-CPA owners must actively provide services to the firms clients as their principal occupation.

b. Rule: Commissions and Referral Fees rule

Violation: No

Explanation: The rule is not violated because a CPA may pay a referral fee to a non-CPA as long as the payment is disclosed to the client.

c. Rule: The Contingent Fees Rule

Violation: Yes

Explanation: The agreement mentioned is a contingent fee agreement and is prohibited by Rule 302.

d. Rule: The Independence Rule (Rule 101)

Violation: Yes

Explanation: Dilbert's daughter is a dependent and her ownership interest in Hannaford Corporation is treated as a direct financial interest of Dilbert.

e. Rule: The Independence Rule

Violation: No

Explanation: There is no violation of the independence rule in this case as according to the code, a close relative is defined as either a parent, sibling, or a nondependent child. A sister-in-law is not considered to be a close relative.


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