Question

For each of the following three (3) scenarios, state two (2) violation of the Rules of Professional Conduct:

a) Bill Williams, CPA, began a telephone campaign to grow his client base. He began calling companies listed in the telephone directly within twenty (20) kilometres advising them of his accounting services. After making several phone calls, Bill finally landed a new audit client, Big Bob Autos. In order to secure this new business, Bill entered into an agreement with Bob whereby Bill would receive a flat fee every time he referred one of his clients to Bob. Bill would also earn a 1% percent commission on any vehicle sale or lease that resulted from the referral. As their business relationship grew overtime, Bill asked Bob for a loan claiming he wanted to expand his accounting practice.

b) Paul Lee, CPA, was the CFO of ABC Incorporated. In his role as CFO, he became aware of a material error in the company’s inventory for the annual financial statements in the amount of approximately $1.5 million. Paul brought the matters to the attention of senior management, who casually indicated that year end was already completed and thus they did not want to harm investor confidence by reissuing the financial statements. Paul did not seek assistance or guidance from either the professional body or the securities commission.

c) David Collier, CPA, obtained his designation in 2000. Since that time, he has built up a significant tax practice. In late 2015, a new client approached David and asked him to perform an audit engagement. Believing this could lead to a substantial amount of tax work in the future, David agreed, even though he had not taken any accounting or assurance courses for many years. In performing the audit engagement, David obtained an engagement letter, put the financial statements together based on the client’s trial balance, and attached a review engagement report. The financial statements contained a material error.

Answer 1

a)

i. A CPA should be Independent while performing professional services.
In given case,
Bill is not independent in metal attitute because he asked for loan. He can't be neutral in the preparation of auditors report and this violates rule of Independance.

ii. A CPA shall not accept a commission (fee) from the referral during the period for that CPA audited financial statement of that client.
In given case,
the agreement of referral between Bill and Bob violates rule of professional conduct.

b)

i. A CPA should maintain objectivity and integrity which should be free of conflict of interest.
In given case,
Paul Lee worked as CFO of ABC Incorporated had conflict of interest and failed to maintain the ability to serve the public interest because he allowed users to rely on materially misstated financial statements.

ii. CPA should follow accounting principles and standards.
In given case,
Paul Lee was associated with false and misleading information. He knew that statements were misstated but did not correct them.

c)

i.CPA should exercise with professional competence.
In given case,
David had not taken any accounting or assurance courses for many years and performed audit work inefficiently.

ii. CPA should prepared his audit report based on relevant and correct data.
In given case,
David prepared his audit report based on financial statements that has material error. The procedures required for a review engagement were not performed.