Question

For each of the following situations, what ethical problem may or may not be present. Other than issue cited, there are no other issues with the audit:

a. Scott CPA names his audit firm Super Audits, Inc. He also advertises that his firm's promise to the audit client is: Satisfaction Guaranteed!

b. Nina CPA works for the accounting firm of Dima and Associates, CPA. She leaves the accounting firm and goes to work for one of her former clients as Chief Financial Officer. Nina's new employer is: i. Not publicly traded. ii. Publicly traded.

c. Scott CPA works on the audit of Pepper, Inc. and his significant other works as Chief Financial Officer for Pepper. Scott's significant other is his: i. Live in Girlfriend. ii. Spouse.

d. Nina CPA goes to her audit client and explains that they can get a substantial refund on their tax bill if they follow her controversial but potentially lucrative suggestion. The amounts are material

e. Scott CPA audits Pepper Inc. Because Pepper is small and uses cash basis accounting. Scott calculates and enters all Adjusting Journal Entries into Pepper's books. Scott converts the books into proper accrual basis financial statements, prepares the Notes to the Financial Statements, and issues an Unqualified Opinion.

Answer 1

Identification of ethical issues:

a. Advertising of the audit services is against the ethical code setup as per AICPA code of ethics issued been followed by various countries audit bodies. Advertising as client satisfaction guaranteed directly affects integrity and objectivity of the auditor.

b. As per SEC, an employee engaging with new employer who previously was an audit client of their accounting firm needs to mandatorily pass through a cooling period of 1 year if they are taking up a financial oversight role. Therefore Nina cannot join a new employer before cooling period.  However the provisions are for listed company only and she can join if client is not public company.

c. Live in girlfriend shall be considered as equivalent to spouse. Thus as per AICPA code of conduct, the arrangement directly affects the independence of the audit engagement. Scott CPA should remove himself from the particular audit engagement.

d. Auditors are required to audit and place their opinion on the decisions taken by the management. It is not their part of the job to give tax consultation to the client. NINA CPA action to give consultation is unethical as it affects the objectivity of their audit opinion.

e. Auditors are not required to prepare or adjust the clients financial books no matter how big or small they are. It directly affects their objectivity issue of ethical conduct issued by AICPA. Thus, Scott CPA actions are unethical.