Question

Question 2

You are a partner in a CPA rm and you are asked to consider the following ve situations that have recently come to your notice. Foreach of the situations given, state whether it has violated or impaired independence or the Code of Ethics for Professional Accountants. Make recommendations for corrective action.

i )One of the partners in your rm, who is a tax expert, advised a clientthat he could help him to request a refund of a substantial amount of the tax paid in the previous year by applying a technical provision in the tax law. It was also agreed that the professional fee to be charged would be 50% of the amount being refunded.

ii )Another partner in the CPA rm has set up a small company of hisown specializing in providing management consultancy services. His wife is the general manager of the consultancy company. The partner is seldom involved in his consultancy practice as hebasically works full-time with his CPA rm.

iii )A car dealer, which is one of the rm’s long-time clients, islaunching a special discount promotion for all its longstanding customers. The general manager of the car dealer advised that,since the rm has been the company’s auditor for over ten years, he had decided that all the partners in the rm could be entitled to thediscount currently offered within the promotion period.

iv )Sally Li, CPA, advertised in the South China Morning Post(newspaper) that her rm performs the audit for 14 of the 36 largeststockbroking companies in Hong Kong. The advertisement also states that the average audit fee, as a percentage of the total assets for the stockbroking companies she audits, is lower than that of anyother CPA rm in the city.

v )Frank Lo, CPA, owns a material amount of shares in a mutual fundinvestment company, which in turn owns shares in Frank’s largest audit client. One day, on receipt of the most recent nancial reportfrom the investment company, Frank was very surprised to learn thatthe mutual fund’s ownership of his client had increased dramatically.

Answer 1

Question No.1 Answer

As per Rule No. 503 of AICPA'S codes of professional conduct a member in public practice shall not for a commission recommend or refer to the client and product or service or for a commission recommend or refer any product or service to be supplied by a client. Also an CPA can charge and receive professional fees for the services he provide Hence it is completely against to the ethics and professional codes of conduct of accounting to receive any extra commission or cash or kind benefits from client as mentioned in the query where that tax expert demands for 50% commission from the tax refund money.

Question No 2 Answer

As the partner in CPA rm basically work full time in CPA rm and seldom work for his own consultancy firm he is not doing violation of any of the rules and principles of professional codes of conduct only he should maintainn integrity and objectivity and should not disclose any client's information to someone else.

QuestioNo.3- Answer

As a rule of Independence a CPA should not hold any financial interest in the client's business in any form since in the query is clearly mentioned that discount scheme is for it's old and trusted customers and a CPA is not a customer of that car dealer therefore the discount scheme should not be acceptable to the CPA.

QuestioNo.4-Answer

As per Rule No.502 of professional codes of conduct of AICPA it is mentioned that

A member in public practice shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is false, misleading or deceptive. solicitation by the use of coercion, over reaching or harassing conduct is prohibited. Since in this query Sally Like,CPA advertised in the newspaper by solicitation (by the mean of over reaching) is a violation of this rule.

Question No.5-Answer

As per Rule 101 of professional codes of conduct of AICPA a CPA should be independent in performance of professional service and should not have any conflict interest. A CPA shall be considered to be impaired if he had or committed to acquire any direct or indirect financial interest in the company. Like in this query Frank Lo owns a indirect financial interest in it's largest audit client.