AICPA Code of Professional Conduct and Gross Negligence Questions I have attached a doc with a bunch of questions that need to be answered. All can be goog

AICPA Code of Professional Conduct and Gross Negligence Questions I have attached a doc with a bunch of questions that need to be answered. All can be googled and answered. No speciec text necessary. Max 2 hours 3-1. What is meant by the term ethical dilemma ? Describe an ethical dilemma that
you have faced.
3-3 What is the basic purpose of a code of ethics for a profession?
3-4. Briefly describe the two parts of the AICPA Code of Professional Conduct.
3-6. In Chapter 2, the 10 generally accepted auditing standards were discussed.
How does the AICPA Code of Professional Conduct relate, if at all, to these 10
generally accepted auditing standards?
3-7. Explain how a CPA might have an indirect financial interest in an audit client.
Does the AICPA Code of Professional Conduct prohibit such interests?
3-8. Bill Scott works as a manager in the Phoenix office of an international public
accounting firm. His father has just taken a position as a purchasing agent for one
of the public accounting firm’s Phoenix clients. Has Bill’s independence been
impaired with respect to this audit client? Has the public accounting firm’s
independence been impaired if Bill does not work on the audit?
3-11. With respect to ethics, what are the responsibilities of the Public Company
Accounting Oversight Board? What is the source of the Board’s authority?
3-14. What bodies are given authority to issue performance standards under Rule
202 of the AICPA Code of Professional Conduct? What authoritative standards does
each body issue?
3-23. What board establishes international ethical standards for accountants? How
do these standards compare to the AICPA Code of Professional Conduct?
3-24. “Since internal auditors are employees, they have no ethical responsibilities to
others beyond their employers.” Comment on this statement.
4-2. Distinguish between ordinary negligence and gross negligence within the
context of the CPAs’ work.
4-4. Define the term third-party beneficiary.
4-7. Briefly describe the different common law precedents set by the Ultramares v.
Touche & Co. case and the Rosenblum v. Adler case.
4-10. Contrast joint and several liability with proportionate liability.
4-20. Glover, Inc., engaged Herd & Irwin, CPAs, to assist in the installation of a new
computerized production system. Because the firm did not have experienced staff
available for the engagement, Herd & Irwin assigned several newly hired staff
assistants without sufficient supervision. As a result, Glover, Inc., incurred
significant losses when the production system crashed, causing significant backlogs
and lost product sales.
4-22. The public accounting firm of Hanson and Brown was expanding very rapidly.
Consequently, it hired several staff assistants, including James Small. Subsequently,
the partners of the firm became dissatisfied with Small’s production and warned him
that they would be forced to discharge him unless his output increased significantly.
At that time, Small was engaged in audits of several clients. He decided that to avoid
being fired, he would reduce or omit entirely some of the required auditing
procedures listed in audit programs prepared by the partners. One of the public
accounting firm’s non-SEC clients, Newell Corporation, was in serious financial
difficulty and had adjusted several of its accounts being examined by Small to
appear financially sound. Small prepared fictitious working papers in his home at
night to support purported completion of auditing procedures assigned to him,
although he in fact did not examine the Newell adjusting entries. The public
accounting firm rendered an unqualified opinion on Newell’s financial statements,
which were grossly misstated. Several creditors, relying upon the audited financial
statements, subsequently extended large sums of money to Newell Corporation.
Would the public accounting firm be liable to the creditors who extended the money
in reliance on the erroneous financial statements if Newell Corporation should fail to
pay its creditors? Explain.
4-26. The international CPA firm of Arthur Andersen faced significant liability in
conjunction with its audits of Enron Corporation.
•
a. From a legal liability perspective, describe the unique features of this audit case.
•
b. Describe the important implications of this audit case for a firm of public
accountants.
4-30. Assume that in a particular audit the CPAs were negligent but not grossly
negligent. Indicate whether they would be “liable” or “not liable” for the following
losses proximately caused by their negligence and determine that liability under the
various theories discussed and followed by different states:
a.
Loss sustained by client; suit brought under common law.
b.
Loss sustained by trade creditor, not in privity of contract; suit brought in a
state court that adheres to the Ultramares v. Touche Co. precedent.
c.
Loss sustained by a bank known to the auditors to be relying on the financial
statements for a loan; suit brought in a state court that adheres to the Credit
Alliance v. Arthur Andersen precedent.
d.
Losses to stockholders purchasing shares at a public offering; suit brought
under the Securities Act of 1933.
e.
Loss sustained by a bank named as a third-party beneficiary in the
engagement letter; suit brought under common law.
f.
Loss sustained by a lender not in privity of contract; suit brought in a state
court that adheres to the Rosenblum v. Adler precedent.
g.
Losses sustained by stockholders; suit brought under Sections 18(a) and
10(b) of the Securities Exchange Act of 1934.
4-31. Match the important cases listed below with the appropriate legal precedent
or implication.
•
a. Hochfelder v. Ernst
•
b. Escott v. BarChris Construction Corp.
•
c. Credit Alliance v. Arthur Andersen & Co.
•
d. Ultramares v. Touche & Co.
•
e. Rosenblum v. Adler
•
f. Rusch Factors, Inc. v. Levin
•
g. United States v. Simon (Continental Vending)
1. A landmark case establishing that auditors should be held liable to third parties not
in privity of contract for gross negligence, but not for ordinary negligence.
2. A case in which the court used the guidance of the Second Restatement of the Law of
Torts to decide the auditors’ liability to third parties under common law.
3. A landmark case in which the auditors were held liable under Section 11 of the
Securities Act of 1933.
4. A case in which auditors were held liable for criminal negligence.
5. A case that established that auditors should not be held liable under the Securities
Exchange Act of 1934 unless there was intent to deceive.
6. A case that established the precedent that auditors should be held liable under
common law for ordinary negligence to all foreseeable third parties.
7. A common law case in which the court held that auditors should be held l iable for
ordinary negligence only to third parties they know will use the financial stat ements
for a particular purpose
8. What is the PCAOB? What is its areas of authority? What is the SEC?
What is its authority? How do they differ?
9. What is the Big Four? What type of work do they do? Why are they
called the Big Four?
10.
What type of work is including in auditing? What type of
work is consulting and advisory work? Why do the Big Four do all
of these types of work?
11.
Who is Steven Harris? What is his position? What is his
opinion? What are the statistics regarding revenues from various
practice areas?
12.
Is this a serious problem? Should it be addressed? What
could be changed?
1. What responsibilities do auditors have to detect fraud? What areas of fraud detection
are easier for auditors to do? What areas are more difficult, given the limits of their
knowledge of the company and access to information?
2. What responsibilities do auditors have for fraud prevention? How does fraud
prevention differ from fraud detection? Why are some of these tasks easier for
company management, while other tasks are easier for auditors?
3. What challenges do auditors face in the detection of fraud? Which of the challenges
could be remedied? What changes should the industry make?
4. What is the fraud triangle? What are its components? How does this concept help
with fraud prevention and detection?

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