Each of the following situations involves possible violations ofthe AICPA Code of Professional Conduct. For each situation, state whether it is a violationof the Code. In those cases in which it is a violation, explain the nature of the violationand the rationale for the existing rule.a. The audit firm of Miller and Yancy, CPAs, has joined an association of other CPAfirms across the country to enhance the types of professional services the firm canprovide. Miller and Yancy share resources with other firms in the association,including audit methodologies, audit manuals, and common IT systems for billingand time reporting. One of the partners in Miller and Yancy has a direct financialinterest in the audit client of another firm in the association.b. Bruce Sullivan, CPA, is the audit partner on the engagement of Xylium Corporation,which is a public company. In structuring the agreement with the audit committeefor the audit of Xylium’s financial statements, Sullivan included a clause that limitsthe liability of Sullivan’s firm so that shareholders of Xylium are prohibited fromsuing Sullivan and the firm for performance issues related to the audit.c. Connor Bradley is the partner in charge of the audit of Southern Pinnacle Bank.Bradley is in the process of purchasing a beach condo and has obtained mortgagefinancing from Southern Pinnacle.d. Jennifer Crowe’s audit client has a material investment in Polex, Inc. Jennifer’snon-dependent parents also own shares in Polex, and Polex is not an attest client ofJennifer’s firm. The amount of her parent’s ownership in Polex is not significant toJennifer’s net worth.e. Joe Stokely is a former partner in Bass and Sims, CPAs. Recently, Joe left the firmto become the chief operating officer of Lacy Foods, Inc., which is an audit clientof Bass and Sims. In his new role, Joe has no responsibilities for financial reporting.Bass and Sims made significant changes to the audit plan for the upcoming audit.
Each of the following situations involves possible violations of
the AICPA Code of Professional Conduct. For each situation, state whether it is a violation
of the Code. In those cases in which it is a violation, explain the nature of the violation
and the rationale for the existing rule.
a. The audit firm of Miller and Yancy, CPAs, has joined an association of other CPA
firms across the country to enhance the types of professional services the firm can
provide. Miller and Yancy share resources with other firms in the association,
including audit methodologies, audit manuals, and common IT systems for billing
and time reporting. One of the partners in Miller and Yancy has a direct financial
interest in the audit client of another firm in the association.
b. Bruce Sullivan, CPA, is the audit partner on the engagement of Xylium Corporation,
which is a public company. In structuring the agreement with the audit committee
for the audit of Xylium’s financial statements, Sullivan included a clause that limits
the liability of Sullivan’s firm so that shareholders of Xylium are prohibited from
suing Sullivan and the firm for performance issues related to the audit.
c. Connor Bradley is the partner in charge of the audit of Southern Pinnacle Bank.
Bradley is in the process of purchasing a beach condo and has obtained mortgage
financing from Southern Pinnacle.
d. Jennifer Crowe’s audit client has a material investment in Polex, Inc. Jennifer’s
non-dependent parents also own shares in Polex, and Polex is not an attest client of
Jennifer’s firm. The amount of her parent’s ownership in Polex is not significant to
Jennifer’s net worth.
e. Joe Stokely is a former partner in Bass and Sims, CPAs. Recently, Joe left the firm
to become the chief operating officer of Lacy Foods, Inc., which is an audit client
of Bass and Sims. In his new role, Joe has no responsibilities for financial reporting.
Bass and Sims made significant changes to the audit plan for the upcoming audit.
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