Question

For the following situation, state whether the CPA has violated the CHARTERED PROFESSIONAL ACCOUNTANTS OF ONTARIO Professional Rules of Conduct and/or Independence Standard, and explain your reasoning.

1. Martha, CPA, has a practice with two departments. One department performs assurance services and the other performs bookkeeping services. One of her publicly accountable audit clients lost its controller and the bookkeeping department provided controllership services for 30 days while the company searched for a new controller. As this was an emergency, it was necessary for Martha’s firm to provide the service because it has an intimate knowledge of the client’s system.

Answer 1

As per the Chartered Professional Accountants of Ontario Professional Rules of Conduct, below rules needs to be considered:

A member or a firm shall not perform audit engagement for a reporting issuer or listed entity, unless in emergency situations, if it provides accounting or bookkeeping services related to accounting records or financial statements during the period covered by the financial statements subject to audit or the engagement period as follows:

1. Maintaining or preparing the entity's or related entity's accounting records.

2. Preparing financial statements based on which audit report is prepared.

3. Preparing source data underlying such financial statements.

Unless it is reasonable to conclude that the results of the such bookkeeping services will not be subject to audit procedures. To determine if such conclusion is reasonable, there is a rebuttable presumption that the results of such bookkeeping services will be subject to audit.

In the case of emergency situation, the member or firm may provide audit as well as bookkeeping or accounting service subject to below conditions:

1. Those who provide the bookkeeping service are not members of the audit engagement team.

2. Provision of such services are not expected to recur.

3. Provision of the service would not lead to any members of the firm or network firm making decisions or judgments which are the responsibility of the management.

4. Provision of the service requires the prior approval of the audit committee of the reporting issuer or listed entity in accordance with the provisions of Rule 204.4(21).

In this case, it would seem that Martha, CPA, has violated the Professional Rules of Conduct because:

1. The CPA is involved in both assurance and bookkeeping services department.

2. The bookkeeping department provided controllership services for 30 days which would most likely mean that there is a rebuttable presumption that the results of such services would be subject to audit.

3. So even if Martha, CPA, is not a member of the audit engagement team, since above 2 conditions are met, the CPA is in violation of the Rules.