Question

Accounting Ethics:

The Detroit accounting firm of Norman, Braverman, Potvin, and Benjamin, CPAs, has always had a cordial, but frequently contentious, relationship with its publicly traded audit client, Jay-Scott, Inc. Jay-Scott sells beverages and must collect a refundable deposit on every glass bottle and aluminum can sold. Lately, for instance, this audit client angrily accused the firm of “sabotage” for failing to allow it to record a portion of these refundable deposit collections as revenue transactions in the year of collection. According to the management of Jay-Scott, statistics prove that 20% of all deposits will be claimed by customers, and therefore, the forfeited deposits constitute immediate revenue. Jay-Scott, Inc. retains this accounting firm annually to perform both tax preparation services and its audit. When the CPA firm informed Jay-Scott that its fee for tax services was going to increase by 4% during the upcoming year, Warren Harris, the CEO of Jay-Scott, said, “That's not being fair to you. You work hard, so let's up that to a 30% increase.” Did this client violate SOX?

Answer 1

Maybe, A client may not attempt to influence or coerce an auditor in the performance of its duties. The client’s rather generous offer to pay more than it was asked to pay could be construed as a disguised bribe, or at least as an act of improper influence. Others might simply perceive this fee offer to be an attempt to rectify historically low compensation in the interest of “being fair.” Some would argue that issues such this, at minimum, create the appearance of a conflict of interest and contend, therefore, that auditors should not be allowed to provide non-audit services.