Question 3 (10 marks) Required For each of the following independent situations,

Question

Question 3 (10 marks) Required For each of the following independent situations, state whether the CPA has violated the CHARTERED PROFESSIONAL ACCOUNTANTS OF ONTARIO Professional Rules of Conduct and/or Independence Standard, and explain your reasoning. a. Emily, CPA, owns a material amount of units in a mutual fund that owns stock in Emily's largest audit client. Reading the mutual fund's most recent financial report, Emily learned that the mutual fund significantly increased its holdings in her client. (2 marks) b. Martha, CPA, has a practice with two departments. One department performs assurance services and the other performs bookkeeping services. One of her publicly accountable audit clients lost its controller and the bookkeeping department provided controllership services for 30 days while thoe company searched for a new controller. As this was an emergency, it was necessary for Martha's firm to provide the service because it has an intimate knowledge of the client's system. (2 marks) e. Emma, CPA, is the auditor for Nestco (a public company) and recommends that the company improve its internal controls. She accepts a 90-day engagement to design and implement new controls and to train company staff on them. (2 marks) d. Harry, a CPA student, is currently employed by a CPA firm in public practice. He accepts a 15% discount on purchases from an audit client. Harry believes that he has not violated the Rules of Conduct because he is not yet a CPA member and the discount is at the same percentage that is available to the client's own staff members. (2 marks) e. Irene, CPA, provides various services for Simply Fashion Inc., a privately held company. She completes all of Simply Fashion Inc. 's tax work, including preparing the annual corporate tax filing and performing tax consulting services. Recently Simply Fashion Inc. began negotiations for a new bank loan, and a condition of the loan is that Simply Fashion must provide the bank with audited financial statements on an annual basis. Simply Fashion has asked Irene to complete the annual audit and to continue to perform the tax services she already performs. Irene accepted the engagement, and in order to improve audit efficiency, she has assigned the team that completes the tax work to the financial statement audit.

Explanation / Answer

A. As in the said situation Emily, the CPA has unintentionally held units of the mutual fund unit which hold majority of stock of her client and it has come to her knowledge recently, there is no fraud and misconduct on part of Emily and her intentions are bonafide and no violation of the code of ethics on her part.

B. The applicable provisions of the CPA Rules for Professional Misconduct states that a member or firm receiving an engagement for services by referral from a member or
firm shall not provide or offer to provide any additional services to the referred client without the consent of the referring member or firm; the interest of the client being of
overriding concern, the referring member or firm shall not unreasonably withhold such consent. In the given scenario, Martha,s firm engaged in providing book-keeping service to the client has for a specified period of time and on an urgent basis have also agreed to provide Controller services for accounts. Meannwhile the client is also searching other CPA's to fill in the vacant position Hence such a step of Martha's firm to accept additional responsibility shall mot result i to professional misconduct as it is for the clients' benefit provided such work is done with independence, integrity and due diligence.

C. Emma &Co. as a consultant recommended the client for strong implementation of internal control system, further, the acceptance of job responsiblity on a contract basis for implementation of the same shall not be said to be professional misconduct on their part, since the acceptance og this engagement shall only enhance and provide a good internal control system because Emma & Co. are independent officers for the company and they are able to implement the job with much more expertise , professional skill and diligently.

D. In the given scenario, Harry ,a CPA student, shall not be said to have violated the code of professional misconduct because he is getting the books at the same price as otjer staff members of the firm with similar discount and hence it shows that he has no personal interest in conduct of business of the firm and his intentions are bonafide.

E.The applicable provisions of the CPA Rules for Professional Misconduct states that a member or firm receiving an engagement for services by referral from a member or
firm shall not provide or offer to provide any additional services to the referred client without the consent of the referring member or firm; the interest of the client being of
overriding concern, the referring member or firm shall not unreasonably withhold such consent. In the given case Irene ,a CPA has intentionally accepted the audit assignment of bank in order to continue her taxation consultant job with the client and therefore she or her firm has no longer an independent opinion on the books of the bank and it results in a professional misconduct on her part.

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