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3-30 (Rules of conduct) 3-35 (Ethical issues) Herb Standard

3-30 (Rules of conduct) There currently are 11 rules in the Code of Professional Conduct. Listed below are circumstances pertaining to these rules.
1. A member shall not express an opinion that the financial statements are presented in conformity with GAAP unless the pronouncements of the FASB have been followed.
2. A member shall not discriminate in employment of assistants.
3. A member shall not include self-laudatory statements that are not based on verifiable facts in advertisements.
4. A member shall not accept a commission for a referral to a client of products or services of others.
5. A member's fees may vary depending on the complexity of the service rendered.
6. A member is not precluded from responding to an inquiry by a trial board of the AICPA.
7. A member may not serve as a trustee for any pension trust of the client during the period covered by the financial statements.
8. A member shall adequately plan and supervise an engagement.
9. A member may not have or be committed to acquire any direct financial interest in the client.
10. A member shall not practice under a misleading firm name.
11. A member shall not knowingly subordinate his or her judgment to others.
12. A member shall follow the technical standards of the Auditing Standards Board in an audit engagement.
13. A member bases the fee on the findings determined by the IRS in a tax audit case.
14. A member discloses confidential information in a peer review of the firm's practice.
15. A member issues an unqualified opinion when a client departs from GAAP because of a conceptual disagreement with the FASB.

Required:
a) Identify the rule to which each circumstance relates.
b) Indicate one other circumstance that pertains to each rule identified in (a) above.

3-35 (Ethical issues)
The following situations involve Herb Standard, staff accountant with the regional CPA Code of Professional Conduct.

1. The bookkeeper of Ethical Manufacturing Company resigned two months ago and has not yet been replaced. As a result, Ethical's transactions have not been recorded and the books are not up to date. To comply with terms of a loan agreement recorded, Ethical needs to prepare interim financial statements but cannot do so until the books are posted. Ethical looks to Cash& Green, its independent auditors, for help and wants to borrow Herb Standard to perform the work. Ethical wants Herb because he did its audit last year.

2. Herb Standard discovered that his client, Ethical Manufacturing Company, materially understand net income on last years' tax return. The client is unwilling to take corrective measures. Herb informs the Internal Revenue Service.

3. While observing the year-end inventory of Ethical Manufacturing Company, the plant manager offers Herb Standard a fishing rod, which Ethical manufactures, in appreciation for a job well done.

4. Herb Standard's acquaintance, Joe is chief loan officer at Local Bank, an audit client of Cash &Green. Herb approaches Joe for an unsecured loan from Local Bank and Joe approves the loan.

5. Her Standard is a Member of a local investment club composed of college fraternity brothers. The club invests in listed sticks and is fairly active in trading. Last week the club purchased the stock of leverage Corp., a client of another Cash & Green office Herb has no contact with the members of this office.

Required
For each situation, (a) identify the ethical issues that are involved and (b) discuss whether there has or has not been any violation of ethical conduct. Support your answers by reference to the rules of the Code of Professional Conduct.

Solution Preview

a) Identify the rule to which each circumstance relates.

1. A member shall not express an opinion that the financial statements are presented in conformity with GAAP unless the pronouncements of the FASB have been followed.
= Rule No. 203 (Accounting Principles)
Another situation: Auditor is aware of a material modification that should be made....and does not.

2. A member shall not discriminate in employment of assistants.
= Rule No 501-3 (Discrimination and harassment in employment practices)
Another situation: A member shall follow all requirements of governmental bodies.

3. A member shall not include self-laudatory statements that are not based on verifiable facts in advertisements.
= Rule 502 (Advertising and solicitation, interpretation 502-2 "creating false or unjustifiable expectations")
Another situation: A member shall not imply the ability to influence a court or agency.

4. A member shall not accept a commission for a referral to a client of products or services of others.
= Rule 503 (Prohibited commissions)
Another situation: A member receiving a commissions should disclose that fact to any person or entity to whom the member refers a product or service.

5. A member's fees may vary depending on the complexity of the service rendered.

= Rule 302 (Contingent fees says it is permissible to vary fees depending on complexity of service)
Another situation: A member should not imply that specific service can be done for a flat fee when the fees cannot be determined yet because it is a future service.

6. A member is not precluded from responding to an inquiry by a trial board of the AICPA.
= Rule 301 (confidential client information permits disclosing in five situations)
Another ...

Solution Summary

Your tutorial is 486 words and gives the rules and other examples. For Herb Standard situations, it mentions the ethical issue and the applicable rule.

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