James is a CPA student with a large public accounting firm and soon he will be promoted to senior accountant. This month, during the audit of Lumber Company, James told the controller that he is fixing a house. The controller gave some material with an employee’s friends and family discount – He pays the bill and was happy to have the materials that he otherwise could not afford.
Q1: What alternative course of action could he have taken to avoid violating the professional code of conduct?
Katherine, a CPA with a major accounting firm decides to meet up with a friend. Jamie is working for an investment company. When Katherine arrives, Jamie was updating his investment analysis of one of the companies he follows. Katherine notices that the company he is working on is her audit clients. When she looks at the spreadsheet that Jamie was working on, she notices he has failed to pick up the effect of large contingent liability from the financial statement notes when calculating the projected earnings of the company. Katherine points out Jamie’s mistake to him.
Q2: What code of conduct she is violating? and what alternative course of action that she could have taken to avoid breaching rules?
Q1. The auditor is not allowed to take any financial benefit from the company as it affects the independence of the auditor. The auditor will get emotionally obliged towards the favour made by the company. The auditor could have taken advise from any investment consultant or people involved in real estate business or house brokers to get the best deal.
Q2. The auditor cannot share information in a way to affect the company investment or profit . He is not allowed to share the audit information other than mentioning it in the audit report. The alternative course of action that she should have taken is to aadvise Jamie what information must be looked into and noticed. She should have told him to go thoroughly through the financial statements and the notes to assess the financial position of the company
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