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Rosa Rosa
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2 months ago
The following situations involve a possible violation of the AICPA's Code of Professional Conduct. For each situation, (1) determine the applicable rule from the Code, (2) decide whether or not the Code has been violated, and (3) briefly explain how the situation violates (or does not violate) the Code.

a. In 2014, Freeman and Johnson, both CPAs, decided to form a CPA practice. In 2016, Freeman and Johnson approached Bill Delaney, a physician and medical expert, and asked him to assist them with their growing medical consulting practice. Delaney agreed, but only after he was given an ownership interest in the firm. Delaney does not intend to quit his private medical practice. 


Explanation:

b. Brian DePalie has a successful dentistry practice in Charleston. Brian has recommended one of his patients to Katie Walton, CPA. To show gratitude for the referral, Katie has agreed to pay Brian a token gift of $50. Katie discloses the payment arrangement to her new clients.


Explanation:

c. The accounting firm of Bayer & Peng, CPAs, is negotiating a fee with a new audit client. They agree the client will pay $50,000 if Bayer & Peng issues a clean, unmodified opinion, $40,000 if a qualified opinion is issued, and only $20,000 if an adverse opinion is issued.


Explanation:

d. Don Smith, CPA, is a member of the engagement team that performs the audit of Shaw Corporation. Don's five-year-old daughter, Precious, received ten shares of Shaw Corporation's common stock for her fifth birthday. The stock was a gift from Precious's grandmother.


Explanation:

e. Jennifer Harris, CPA, is a partner in the CPA firm that audits Alltech, Inc., a closely held corporation. Jennifer's sister-in-law is the chief financial officer at Alltech, Inc.


Explanation:
Textbook 

Auditing and Assurance Services


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GlitterBug11GlitterBug11
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a. Violation of the rule on Form of Organization and Name. Non-CPA ownership of firms is allowable; however, non-CPA owners must actively provide services to the firm's clients as their principal occupation.

b. No violation of the Commissions and Referral Fees rule. A CPA may pay a referral fee to a non-CPA as long as the payment is disclosed to the client.

c. Violation of the Contingent Fees rule. Charging a contingent fee for attestation services is prohibited. 

d. Violation of the Independence rule. Don is a covered member for purposes of the independence rule. Because his daughter is a dependent, her ownership interest in Shaw is treated as a direct financial interest of her father.

e. No violation of the Independence rule. According to the Code a close relative is defined as a parent, sibling, or nondependent child. Thus, a sister-in-law is not considered to be a close relative.

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Rosa Author
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Helped a lot
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Thank you, thank you, thank you!
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Smart ... Thanks!
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