Exercise 2 (Chapter 4) – AICPA Code of Professional Ethics Kathryn Hill discover
ID: 2568763 • Letter: E
Question
Exercise 2 (Chapter 4) – AICPA Code of Professional Ethics Kathryn Hill discovered a material reporting error in the accounting records of Jones, Inc. (JI) during the annual audit. The error was so significant that it will certainly have an adverse effect on the price of the client’s stock which is actively traded on the eastern stock exchange. After talking to her close friend, and president of JI, Hill agreed to withhold the information until the president had time to sell her JI stock. Hill leaked the information to her parents so that they could sell their shares of JI stock as well. The reporting matter was a relatively complex issue that involved recently issued reporting standards. Hill told herself that if she were caught she would simply plead ignorance. She would simply say that she did not have time to keep up with the rapidly changing standards and she would be off the hook.
REQUIRED:
a. Write a communication that identifies specific articles of the AICPA Code of Professional Conduct that were violated by Hill.
b. Would pleading ignorance relieve Hill from her audit responsibilities?
Explanation / Answer
The AICPA Code of Professional Conduct is a collection of codified statements issued by the American Institute of Certified Public Accountants that outline a CPA's ethical and professional responsibilities. The code establishes standards for auditor independence, integrity and objectivity, responsibilities to clients and colleagues and acts discreditable to the accounting profession.
In given case, Hill has violated two clauses. One by not adhering to the standards which adversely effect the prices of the company and second one by disclosing the matter to her family.
Hence, Hill is guilty of offence.
B. Auditing Standards are made so that true and fair picture of financial statments is to be presented. Mere acceptance of the fault cannot releive the auditor from distracting herself from atending auditor's responsibities.
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