Responsibilities to Clients’ Cases. Read the following cases. For each case, state whetherthe action or situation shows a violation or potential for violation of the AICPA Code ofProfessional Conduct, explain why, and cite the relevant rule.a. CPA Sal Colt has discovered a way to eliminate most of the boring work of processingroutine accounts receivable confirmations by contracting with the Cohen Mail Service.After the auditor has prepared the confirmations, Cohen stuffs them in envelopes, mailsthem, receives the return replies, opens the replies, and returns them to Colt.b. Cadentoe Corporation, without consulting Jora Cramer, its CPA, has changed itsaccounting so that it is not in conformity with GAAP. During the regular audit engagement, Cramer discovers that the statements based on the accounts are so grossly misleading that they might be considered fraudulent. Cramer resigns the engagement aftera heated argument. Cramer knows that the statements will be given to Sandy Panzer, afriend at the Last National Bank, and that Panzer is not a very astute reader of complicated financial statements. Two days later, Panzer calls Cramer and asks some generalquestions about Cadentoe’s statements and remarks favorably on the very thing thatis misrepresented. Cramer corrects the erroneous analysis and Panzer is very muchsurprised.c. A CPA who had reached retirement age arranged to sell the practice to another certifiedpublic accountant. Their agreement called for the review of all audit documentation andbusiness correspondence by the accountant purchasing the practice.d. Martha Jacoby, CPA, withdrew from the audit of Harvard Company after discovering irregularities in Harvard’s income tax returns. One week later, Jacoby received aphone call from Jake Henry, CPA, who explained that he had just been retained by Harvard Company to replace her. Henry asked Jacoby why she withdrew from the Harvardengagement, and she told him.e. CPA Chen Wallace has two audit clients: Willingham Corporation owned by JaydenWillingham and Ward Corporation owned by Bailey Ward. Willingham Corp. sells alarge proportion of its products to Ward Corp., which amounts to 60 percent of WardCorp.’s purchases in most years. Willingham and Ward are also Wallace’s tax clients asindividuals. This year, while preparing Ward’s tax return, Wallace discovered information that suggested Ward Corporation is in a failing financial position. In considerationof the fact that the companies and individuals are mutual clients, Wallace discussed WardCorporation’s financial difficulties with Willingham.f. Ashley Fiddle, CPA, prepared an uncontested claim for a tax refund on Faddle Corporation’s amended tax return. The fee for the service was 30 percent of the amount the IRSrules to be a proper refund. The claim was for $300,000.g. After Faddle had won a $200,000 refund and Fiddle collected the $60,000 fee, JordanFaddle, the president, invited Fiddle to be the auditor for Faddle Corporation.
Responsibilities to Clients’ Cases. Read the following cases. For each case, state whether
the action or situation shows a violation or potential for violation of the AICPA Code of
Professional Conduct, explain why, and cite the relevant rule.
a. CPA Sal Colt has discovered a way to eliminate most of the boring work of processing
routine accounts receivable confirmations by contracting with the Cohen Mail Service.
After the auditor has prepared the confirmations, Cohen stuffs them in envelopes, mails
them, receives the return replies, opens the replies, and returns them to Colt.
b. Cadentoe Corporation, without consulting Jora Cramer, its CPA, has changed its
accounting so that it is not in conformity with GAAP. During the regular audit engagement, Cramer discovers that the statements based on the accounts are so grossly misleading that they might be considered fraudulent. Cramer resigns the engagement after
a heated argument. Cramer knows that the statements will be given to Sandy Panzer, a
friend at the Last National Bank, and that Panzer is not a very astute reader of complicated financial statements. Two days later, Panzer calls Cramer and asks some general
questions about Cadentoe’s statements and remarks favorably on the very thing that
is misrepresented. Cramer corrects the erroneous analysis and Panzer is very much
surprised.
c. A CPA who had reached retirement age arranged to sell the practice to another certified
public accountant. Their agreement called for the review of all audit documentation and
business correspondence by the accountant purchasing the practice.
d. Martha Jacoby, CPA, withdrew from the audit of Harvard Company after discovering irregularities in Harvard’s income tax returns. One week later, Jacoby received a
phone call from Jake Henry, CPA, who explained that he had just been retained by Harvard Company to replace her. Henry asked Jacoby why she withdrew from the Harvard
engagement, and she told him.
e. CPA Chen Wallace has two audit clients: Willingham Corporation owned by Jayden
Willingham and Ward Corporation owned by Bailey Ward. Willingham Corp. sells a
large proportion of its products to Ward Corp., which amounts to 60 percent of Ward
Corp.’s purchases in most years. Willingham and Ward are also Wallace’s tax clients as
individuals. This year, while preparing Ward’s tax return, Wallace discovered information that suggested Ward Corporation is in a failing financial position. In consideration
of the fact that the companies and individuals are mutual clients, Wallace discussed Ward
Corporation’s financial difficulties with Willingham.
f. Ashley Fiddle, CPA, prepared an uncontested claim for a tax refund on Faddle Corporation’s amended tax return. The fee for the service was 30 percent of the amount the IRS
rules to be a proper refund. The claim was for $300,000.
g. After Faddle had won a $200,000 refund and Fiddle collected the $60,000 fee, Jordan
Faddle, the president, invited Fiddle to be the auditor for Faddle Corporation.
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