Hi, I am doing Case Stuy for accouting class. The Case is as follows: Caroline,

Question

Hi, I am doing Case Stuy for accouting class. The Case is as follows:

Caroline, CPA is a sole proactioner, with two professional empolyees(a CPA with three years of experinece and a new college graduate
with an accounting degree). Caroline is bidding on the audit of a local city. Caroline is trying to break into the market for government audits.
Last year the city paid$25,000 its audit. Caroline is considering bidding only $10,000 to perform the audit.

Question1: What ethical threats exist for Caroline and her firm? I am not sure about this question. Is this mean Caroline is trying
to give a serice for $10,000 and getting the rest of the money for herself or her firm?
Question2: What safeguards can Caroline put in place so that firm does not have any ethical violations? I don't understand the meaning of this quesion.

Please help me. Thank you so much.
  

Explanation / Answer

Question 1:

Caroline is a CPA. As a practising professional, it is her duty to work with the utmost integrity and uphold the respect that is assigned to the profession. By providing a service at much less than the audit fees paid last year, she is giving unfair competition to her fellow professionals just to break in the market for government audits. The ethical threat here is lowering of fees in order to get a job disregarding the means to do so.

Question 2:

To ensure that Caroline does not have any ethical violations, she should prepare a sheet of fees charged by auditors for similar scale government audits and charge the lowest of those amounts as it would still mean that the fees is reasonable.

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