Introduction

The Code of Professional Conduct provides guidelines for accounting practitioners in the conduct
of their professional affairs. A member of the ICAB must observe all the Rules of Conduct unless an exception applies. The need to observe the Rules of Conduct also extends to individuals who carry out tasks on behalf of an ICAB member. A member may be held responsible for a violation of the rules committed by fellow partners, shareholders, or any other person associated with him who is engaged in the practice of public accounting. The bylaws of the ICAB provide the basis for determining whether a member has violated the Rules of Conduct. If a member is found guilty of a violation, he or she may be admonished, suspended or expelled. A member of the ICAB also must be aware of Interpretations of the ICAB Rules of Conduct. After public exposure, Interpretations of the ICAB Rules of Conduct are published by the Executive Committee of the Professional Ethics Division. Interpretations are not intended to limit the scope or application of the Rules of Conduct. A member of the ICAB who departs from the guidelines provided in the Interpretations has the burden of justifying such departure. 1.1 Objectives of the report Our main objective in conducting this survey is to find out how important the work-life balance policy is to the employees and how the organizations are practicing those policies. We are also concerned to analyze how the organizations, especially the Banks are maintaining an organizational culture where work-life balance policy is being practiced. Another objective of the report is to evaluate the effectiveness of the employees participation and Management acceptance. To find out defective area of this policy. 1.2 Methodology Sources of data The whole data is analyzing the Work-Life Balance policy performance for evaluating the organization performance in management with the management acceptance in their area with positive mode. Primary Sources I have collected the information through an assigned questionnaire to evaluate the Work-Life Balance policy performance and evaluate the result from the 5 employees including three different stage of management from 5 different banks. I have collected those data and analyzed them for the results. Secondary Sources I have also collected information through the internet to have a deep knowledge over the work-life balance policy and used them in the preparation of this report.

1.3 Methods of data analysis I analyze the data in a quantitative and subjective way. I have used some statistical tool to analyze the data and produce the results. I have also used graphical presentations of data analyzed. 1.4 Rationale of the Study With the growing concern about the work life balance policy we and also the employees should know what work-life balance policy is. So, for the following reasons this study is important: Organize the Practical achievement of HRM

To meet the need of work-life and personal life effectively Make familiarized with the HRM environment To allow employees more control over their working arrangements To evaluate Management efficiency through the policy 1.5 Scope of the Report
This study covering a in depth analysis of work-life balance with a questionnaire into5 banks (United commercial Bank, Agrani Bank, Islami Bank and Eastern Bank Limited ) to collect the answer from five different people for doing my report and thus give me the way to familiarize myself with the HRM environment for the first time indeed. This gave me an opportunity to gather practical experience by working in the practical arena with my limited theoretical knowledge and expertise. The area of concentration of this report is about the analysis of their (employees) answer through Fishbone theory and Comparative analysis. I have chosen this topics because a very few analysis is done on this matters.

1.6 Limitations of the Report I have tried to prepare a good report but the following limitations can hinder the objective of this report: The employee while answering the questionnaire may be biased. The sample size of the study is very small and hence the findings may not be reliable Some employees may not understand the questions and the answer may differ.

Rule 101 Independence

A member in public practice shall be independent in the performance of professional services as required by the standards promulgated by bodies designated by Council. Independence is a highly subjective term because it concerns an individuals ability to act with integrity and objectivity. Integrity relates to an auditors honesty, while objectivity is the ability to be neutral during the conduct of the engagement and the preparation of the auditors report. Two facets of independence are independence in fact and independence in appearance. The second general standard of generally accepted auditing standards requires that an auditor be independent in mental attitude in all matters relating to the engagement. In essence, the second standard embraces the concept of independence in fact. However, independence in fact is impossible to measure, since it is a mental attitude; the Code of Professional Conduct takes a more pragmatic approach to the concept of independence.

Rule 102 - Integrity and Objectivity

In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others. Rule 102 is very broad on purpose. The Code of Professional Conduct could not possibly proscribe every action that is to be avoided. Thus, Rule 102 could cover a variety of misconduct.

Rule 201 - General Standards

A member shall comply with the following standards and with any interpretations thereof by bodies designated by Council. A. Professional Competence. Undertake only those professional services that the member or the members firm can reasonably expect to be completed with professional competence. B. Due Professional Care. Exercise due professional care in the performance of professional services. C. Planning and Supervision. Adequately plan and supervise the performance of professional services. D. Sufficient Relevant Data. Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed. In general, these standards are applicable to all professional services rendered by an accounting firm. For example, an accountant who performs a consulting services engagement must properly plan and supervise the job.

Rule 201 requires that a firm have a certain level of expertise before an audit, tax, or consulting engagement is accepted. This does not suggest that an accounting firm must have complete knowledge in an area before the engagement is accepted -- a lack of competence is not apparent just because an accounting firm accepts a client knowing that additional research may be necessary to complete the job.

Rule 202 - Compliance with Standards

A member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by Council Rule 202 requires members to observe technical standards promulgated by bodies designated by the ICAB Council. To date, the bodies designated by the Council are the Auditing Standards Board (ASB), Accounting and Review Services Committee (ARSC), and Management Consulting Services Executive Committee (MCSEC). The ICAB Council has not given the Federal Tax Division (of the ICAB) the authority described in Rule 202. Each pronouncement in the Statements on Responsibilities in Tax Practice carries the notation that each Statements authority depends on its general acceptance. However, a practitioner must observe the standards and rules established by the U.S. Treasury Department.

Rule 203 - Accounting Principles

A member shall not (1) express an opinion or state affirmatively that the financial statements or other financial data of any entity are presented in conformity with generally accepted accounting principles or (2) state that he or she is not aware of any material modifications that should be made to such statements or data in order for them to be in conformity with generally accepted accounting principles, if such statements or data contain any departure from an accounting principle promulgated by bodies designated by Council to establish such principles that have a material effect on the statements or data taken as a whole. If, however, the statements or data contain such a departure and the member can demonstrate that due to unusual circumstances, the financial statements or data would otherwise have been misleading, the member can comply with the rule by describing the departure, its approximate effects, if practicable, and the reasons why compliance with the principle would result in a misleading statement. Rule 203 also provides flexibility in the application of accounting principles. When the auditor concludes that a written accounting rule should not be followed, the auditors standard report must be expanded to include an explanatory paragraph. The explanatory paragraph would describe the nature of the departure; however, the opinion expressed would be an unqualified opinion and no reference to the explanatory paragraph would be made in the opinion paragraph.

Rule 301 - Confidential Client Information

A member in public practice shall not disclose any confidential client information without the specific consent of the client. This rule shall not be construed (1) to relieve a member of his or her professional obligations under rules 202 and 203, (2) to affect in any way the members obligation to comply with a validly issued and enforceable subpoena or summons, or to prohibit a members compliance with the applicable laws and government regulations, (3) to prohibit review of a members professional practice under ICAB or state CPA society or Board of Accountancy authorization, or (4) to preclude a member from initiating a complaint with, or responding to any inquiry made by, the professional ethics division or trial board of the Institute or a duly constituted investigative or disciplinary body of a state CPA society or Board of Accountancy. Members of any of the bodies identified in (4) above and members involved with professional practice reviews identified in (3) above shall not use to their own advantage or disclose any members confidential client information that comes to their attention in carrying out those activities.

This prohibition shall not restrict members exchange of information in connection with the investigative or disciplinary proceedings described in (4) above or the professional practice reviews described in (3) above. An auditor should have access to a variety of information held by the client if the engagement is to be successful. The client will grant the auditor access to sensitive files and reports only if it can expect the auditor to hold the information in confidence. The purpose of Rule 301 is to encourage a free flow of information from the client to the CPA; however, the rule makes it clear that the principle of confidentiality is not absolute. The confidentiality concept does not allow the client to omit information that is required by generally accepted accounting principles. SAS-32 (Adequacy of Disclosure in

Rule 502 - Advertising and Other Forms of Solicitation

A member in public practice shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is false, misleading, or deceptive. Solicitation by the use of coercion, overreaching, or harassing conduct is prohibited. Before 1978, Rule 502 prohibited advertising. Currently, a member is not prohibited from advertising or soliciting clients. The change in Rule 502 resulted from legal action taken by the Justice Department against a number of professional groups.

Rule 503 - Commissions and Referral Fees

A. Prohibited Commissions: A member in public practice shall not for a commission recommend or refer to a client any product or service, or for a commission recommend or refer any product or service to be supplied by a client, or receive a commission, when the member or the members firm also performs for that client: (a) An audit or review of a financial statement; or (b) a compilation of a financial statement when the member expects, or reasonably might expect, that a third party will use the financial statement and the members compilation report does not disclose a lack of independence; or (c) An examination of prospective financial information. This prohibition applies during the period in which the member is engaged to perform any of the services listed above and the period covered by any historical financial statements involved in such listed services. B. Disclosure of Permitted Commissions A member in public practice who is not prohibited by this rule from performing services for or receiving a commission and who is paid or expects to be paid a commission shall disclose that fact to any person or entity to whom the member recommends or refers a product or service to which the commission relates.

C. Referral Fees
Any member who accepts a referral fee for recommending or referring any service of a CPA to any person or entity or who pays a referral fee to obtain a client shall disclose such acceptance or payment to the client. A CPA cannot receive a commission for recommending a clients product or services if the CPA audits or reviews that clients financial statements or examines that clients prospective financial information. In addition, no commissions can be received when the CPA compiles a clients financial statements if the CPA believes that a third party will rely on the statements, unless any lack of independence is disclosed in the compilation report.

Rule 504 - Incompatible Occupations (Withdrawn)

The concept of incompatible occupations now is covered by Rule 101 (Independence).

Rule 505 - Form of Organization and Name

A member may practice public accounting only in a form of organization permitted by law or regulation whose characteristics conform to resolutions of Council. A member shall not practice public accounting under a firm name that is misleading. Names of one or more past owners may be included in the firm name of a successor organization. Also, an owner surviving the death or withdrawal of all other owners may continue to practice under a name which includes the name of past owners for up to two years after becoming a sole practitioner. A firm may not designate itself as Members of the American Institute of Certified Public Accountants unless all of its owners are members of the Institute. Over the past several decades, the character of the practice of accounting has broadened to include a variety of activities that are beyond the scope of accounting. These activities include, among others, environmental auditing, executive recruitment, and the design of sophisticated computer systems that are not part of the clients accounting system. With the expansion of the types of services provided by accounting firms, there is an obvious need to recruit personnel who do not have an accounting/auditing background. For many accounting firms, these nontraditional professionals are increasingly important to their growth and development. However, because of the rules adopted by the ICAB, a nontraditional professional, no matter how competent or important to the firm, could not be an owner of the firm. The ICAB allows a CPA firm to be owned by non-CPAs if the form of ownership is sanctioned by the particular state and if the following guidelines are observed: Fifty-one percent of the ownership (as measured by financial interest and voting rights) must be held by CPAs. A non-CPA owner must be actively engaged in providing services to clients of the firm, and that participation must be the principal occupation of the non-CPA. A CPA must be ultimately responsible for all services provided by the firm that involve financial statement attestation, compilation services, and other engagements governed by Statements on Accounting Standards or Statements on Standards for Accounting and Review Services. A non-CPA who becomes an owner after the adoption of the ICAB resolution must have a baccalaureate degree (after 2010, the individual must have completed 150 semester hours of education). A non-CPA may not hold him or herself out as a CPA, but may be referred to as a(n) principal, owner, officer, member, shareholder or other title allowed by state law. A non-CPA owner must observe the ICAB Code of Professional Conduct. A non-CPA owner must complete the same number of CPE units as CPAs. While the resolution allows for accounting firm ownership by non-CPAs, those individuals are not eligible for membership in the ICAB.

4-20 a. The applicable section of the rules of conduct for this situation is Rule- 101 Independence. This situation is not a violation of this section. b. The applicable section of the rules of conduct for this situation is Rule-102 Integrity and objectivity which states that in performing any professional service a member shall maintain objectivity and integrity; shall be free of conflict of interest and shall not knowingly misrepresent facts or subordinate his or her judgment to others. As the CPA is subordinating her judgment to the judgment of the client, she is violating Rule-102
c. The applicable sections of rule for this situation are Rules 101 (Independence) and 102

(Integrity and Objectivity). This is a Violation because the Appearance of independence has been impaired by Bill Wendals agencys financial dealing with his audit clients and participation in a business, which also impairs his objectivity. It is also a conflict of duties to recommend his own firm to review the adequacy of the existing insurance coverage of existing clients.
d. The applicable section for this situation is Rule 301 - Confidential Client Information. This is a

Violation of this rule because the client should have been notified that the review was to take place, and an attempt made to obtain the client's permission for such review because the review was not a part of an ICAB, state CPA society or Board of Accountancy review program. The firms violated Rule 301 by not obtaining consent from the client for the review.
e. The applicable section for this situation is Rule 501 - Acts Discreditable. No violation. f. The applicable section for this situation is Rule. Rule 201 - General Standards. This is a

Violation. As the interpretation of 201-1 states that a member who accepts a professional engagement implies that he or she has the necessary competence to complete the engagement according to professional standards. As Bacon does not have the expertise to review the work of the consultant hired he has violated the rule. Bacon should have suggested that the company hire the consultant directly.
g. The applicable section for this situation is Rule 101 - Independence. This situation does not

imply any violation. If the services performed conform to the requirements of Interpretation 101-3, independence of Rankin would not be considered to be impaired.

4-21 This is a violation of Rule 505 because administrative personnel are responsible primarily for office administration, and do not directly provide services to the firms clients.
a.

This does not imply any violation. 101-3 permits the performance of other services for clients. Before a member performs such services, he or she must carefully evaluate the potential effect of such services on independence. The member should establish a clear understanding with the client, and should not be responsible for preparing source documents, originating data, or performing any management functions.
b.

This situation will be a Violation if the services performed are attestation related, otherwise, no violation. A CPA is not permitted to pay a commission to obtain a client for attestation related services (Rule 503).
c. d. e. f.

There is no violation. The Rule 401 and 502 have prohibited this. There is no Violation. This is normal practice and is done as a part of almost all audits.

This is not a violation. Rule 502 on advertising permits the use of promotional efforts designating specialties or areas of practice as long as the advertising is not false, misleading or deceptive. This is not a violation of any rule. The only questionable part of the situation is the statement by the e-commerce article that Gutowski is an e-commerce expert. It may be difficult for Gutowski to demonstrate that he is in fact an expert, but the interpretations of Rule 502 do not prohibit him from making such a statement.
g.

There is no violation as Williams does not perform or give advice on management functions of the organization.
h.

This situation is a violation. Rule 301 does not distinguish between audit, tax, and management advisory services-related working papers. He has therefore violated the rules.
i. j.

There is no violation done. Because there is no rule restricting such practice.

4-22 a. An audit committee is a special committee formed by the board of directors and made up of board members. The SarbanesOxley Act requires that all the members of the audit committee be independent directors, and should include at least one member who is a financial expert. The audit committee serves as a liaison between the independent auditor and the board of directors. The audit committee assists and advises the full board of directors, and, as such, aids the board in fulfilling its responsibility for public financial reporting. b. The functions of an audit committee may include the following: 1. Select the independent auditor; discuss audit fee with the auditor; review auditor's engagement letter. 2. Review the independent auditor's overall audit plan (scope, purpose, and general audit procedures). 3. Review the annual financial statements before submission to the full board of directors for approval. 4. Review the results of the audit including experiences, restrictions, cooperation received, findings, and recommendations. Consider matters that the auditor believes should be brought to the attention of the directors or shareholders. 5. Review the independent auditor's evaluation of the company's internal controls. 6. Review the company's accounting, financial, and operating controls. 7. Review the reports of internal audit staff. 8. Review interim financial reports to shareholders before they are approved by the board of directors. 9. Review company policies concerning political contributions, conflicts of interest, and compliance with federal, state, and local laws and regulations, and investigate compliance with those policies. 10. Review financial statements that are part of prospectuses or offering circulars; review reports before they are submitted to regulatory agencies. 11. Review independent auditor's observations of financial and accounting personnel. 12. Participate in the selection and establishment of accounting policies; review the accounting for specific items or transactions as well as alternative treatments and their effects. 13. Review the impact of new or proposed pronouncements by the accounting profession or regulatory bodies. 14. Review the company's insurance program. 15. Review and discuss the independent auditor's management letter. c. Management is frequently under considerable pressure from stockholders and the board of directors to maintain high earnings for the company. In some cases this may in turn motivate management to put pressure on auditors to permit a violation of accounting principles and therefore affect the reported earnings and disclosures in the financial statements. The board of directors has a greater responsibility to the stockholders for fairness in reported earnings. Directors, especially those who are outside directors, have less responsibility for high reported earnings. Directors are therefore less likely to put pressure on auditors to deviate from high professional standards, and the audit committee can deal with the auditor in a less biased manner than can management. In addition, the board of directors has a legal responsibility to review the policies and actions of management; therefore there is considerable incentive for them to work closely with the auditor. A small committee of outside directors from the audit committee is

therefore equipped to help the auditor to maintain a more independent relationship with the client. If management exerts any pressure on the auditor, the auditor is likely to discuss that with the audit committee and thereby resolve the problem. d. The criticism of audit committees has been made by many smaller CPA firms. There may be some validity to the comment. At the same time, audit committees do have a responsibility to help a company control costs. Therefore if the cost of a smaller audit firm is significantly less than a large firm, assuming equal quality, the audit committee would be obligated to use the less expensive firm.

4.24 a. Independence is essential for an auditor because users of financial statements expect an unbiased viewpoint in the CPA's attestation to the fairness of the financial statements. If users believe that auditors are not independent, the value of the audit function is eliminated. b. Most other professions (attorneys, doctors, dentists, etc.) represent their clients and perform services intended primarily to assist their clients. For this reason no assumption of independence is required. The importance of independence for CPAs is similar to that for judges. For both, a no advocacy position is essential. c. Independence in appearance is how independent the auditor appears to outsiders such as users of financial statements. Independence in fact refers to whether the auditor has maintained an attitude of independence throughout the engagement. For example, an auditor could possibly maintain an attitude of independence in fact even though he or she held shares of stock in a company and performed the audit (the auditor would have violated Rule 101). However, the auditor would not likely be independent in appearance in such a situation. Both independence in appearance and fact are essential and the Code of Professional Conduct concerns both. d. 1. He has violated the Code of Professional Conduct. Rule 101 prohibits any direct ownership by a partner or shareholder. 2. Such a small ownership is unlikely to have any impact on a partner's objectivity in evaluating the financial statements. It is unlikely to affect the partner's independence in fact. 3. Such ownership could affect the appearance of independence and therefore impact the reputation and credibility of auditors. Additionally these strict requirements eliminate any controversy as to the line between a material and immaterial ownership. It also shows outsiders the importance of independence to auditors and therefore hopefully improves the reputation of the profession.

e.

INDEPENDENCE IN FACT 1. May cause the auditor to permit misstatements to enhance personal wealth. 2. Person doing this audit may not do the audit work carefully because he or she did the bookkeeping.

INDEPENDENCE IN APPEARANCE Users may perceive that auditors would permit misstatements to enhance personal wealth. Users may perceive that the auditor may not independently audit his or her own work.

SOCIAL CONSEQUENCES OF PROHIBITING Minor, if any.

3. The audit team may become complacent due to familiarity and not carefully evaluate potential misstatements.

Users may perceive the possibility of complacency.

4. The CPA firm may become complacent due to familiarity and not carefully evaluate potential misstatements.

Users may perceive the possibility of complacency.

Some clients find it less expensive to have bookkeeping services performed by an outside service. It is often less expensive to have this done by the auditor because the auditor will already be knowledgeable about the business. Knowledge gained by the audit team about a client's business is essential to evaluate when misstatements in the financial statements are likely and to plan the audit. It is costly for a new audit team to obtain that knowledge. The same conclusions reached in (3) about the audit team are applicable to CPA firms. The cost of a new CPA firm of obtaining the knowledge is even greater because of confidentiality requirements and communication difficulties between CPA firms.

INDEPENDENCE IN FACT 5. The auditor may be unwilling to disagree with management for fear of being terminated.

INDEPENDENCE IN APPEARANCE Users may perceive that the auditor is unwilling to disagree with management.

6. There may be an absence of a careful independent check of the entries or pre-paration of the statements because they were originally prepared by the auditor. 7. The auditor may be reluctant to criticize or not rely on an accounting system that was originally recommended by the CPA firm. Additionally, if the CPA firm obtains considerable revenue from management advisory services, the CPA firm may fear the loss of the client and therefore be controlled by management.

Users may believe that the auditor may not independently audit his or her own work or that of a staff person from his or her firm. Users may perceive either of the two concerns discussed under independence in fact.

SOCIAL CONSEQUENCES OF PROHIBITING Someone has to select the auditor. Management is usually in the best position to evaluate the effectiveness and cost of alternative auditors, especially for private companies. Many clients lack technical expertise in accounting. Having services performed by the auditor is sometimes the least costly alternative. A CPA firm gains considerable knowledge about a client and its business during the audit. Due to this knowledge, management services can often be provided by the same CPA firm at a lower cost than alternative sources such as other CPA firms or management consultants.

f. The ICAB Code of Professional Conduct prohibits only e(1). The SEC prohibits e(1) if the

person owning the stock is a member of the engagement team or is a partner in the office of the partner primarily responsible for the audit engagement. The SEC also prohibits e(2), and e(3) would also be considered a violation if the adjusting entries were so extensive that they are, in essence, bookkeeping services. The SEC also prohibits the management services in e(4) if they are one of the nine nonaudit services prohibited by the SEC. Because the SarbanesOxley Act requires that the audit committee select the auditor, e(7) is now also a violation of SEC rules.

4.25 The Code of Professional Conduct and interpretations are not clear as to what constitutes a violation in these three situations. A central point is that Marie Janes must maintain independence

in fact and appearance because she is not an employee of the company and must not give the impression that she is one. (a) RULES OF CONDUCT VIOLATED? 1. Marie Janes has likely not violated the rules; the discount is available to customers on a widespread basis. Presumably many of the employees of the CPA firm buy automobiles from the agency. (b) APPROPRIATE ACTION? 1. Marie Janes should discuss the discount with the firm's managing partner if she intends or wants to buy the automobile. She should certainly not feel compelled to buy the automobile but she should also not automatically turn it down. The situation would be entirely different if the sale were limited to employees. In such a case it would likely be a violation. 2. Marie Janes should eat elsewhere if it is practical to do so but if the only practical place for her to eat is the lunchroom, she should make arrangements with her firm to make certain that the company is reimbursed for the expenses. 3. Ideally Janes should not accept the gift and state that since she is not an employee, she would prefer not to take it. If she believes that it would be embarrassing to the company, she should graciously accept it and return it with an explanation of her reasons as soon as practical.

2. If Marie Janes were to eat there on an ongoing basis that would likely be a violation of the rules of conduct. It would not likely be a violation if she occasionally eats with employees she is dealing with at the audit. 3. Accepting such a gift is likely to be a violation of the rules of conduct. That gift is reasonably large and would be considered by many employees as equivalent to a bonus.

CASES 4-27 The answers to these questions are more judgmental than most others in the chapter. They may, in some cases, be a violation of the spirit of the Code if the CPA is acting in a certain manner, and they may not be a violation if the CPA is acting in a different manner. For example, in 4, if Davis is sending business executives in small companies to his small loan company, there's likely to be a violation of the rule of conduct. On the other hand if he recommends the small loan company along with several others, only for those clients who truly need the services of a small loan company, he is not likely to be in violation. (Changing the facts throughout the discussion may increase the value of the case.) 1. This would not be a violation of the rules of conduct or interpretations. It is common and acceptable for a CPA firm to inform a member of management of the availability of limited partnerships. Similarly it is common for management to inform the CPA firm of such investment opportunities. In many cases the limited partners do not know of the other investors in the limited partnership. If the CPA and owner of Marshall Marine Co. either earn or lose significant sums in the investment, it should have no effect on their relationship or on the audit of Marshall Marine Co. Contingent fee arrangements between the CPA and the client are a violation of the rules for clients receiving attestation services. However, Rule 302 specifically states that fees are not
2.

regarded as being contingent if fixed by courts or other public authorities or, in tax matters, if determined based on the results of judicial proceedings and the findings of government agencies. This situation involves tax matters the results of which are determined by judicial proceedings, therefore there is no violation. 3. Rule 502 permits advertising as long as it is not false, misleading, or deceptive. The advertising expressly states two facts: 14 of 36 of the largest savings and loans companies are audited by their firm and second, the average audit fee, as a percentage of total assets, is lower than any of the other CPA firms in the city. Contel must be able to support those factual statements. Assuming he can, there is no violation. However, it may be difficult to support the comparison to the fees of other firms. 4. There is no violation because Rule 504--Incompatible Occupations no longer exists. There may have been a violation under old Rule 504 if Davis or his employees consistently sent clients of Davis to the small loan company and/or encouraged them to make loans from such company. 5. There may be a material indirect interest in the audit client. Elbert owns a material amount of stock and if the mutual fund in turn invests a large portion of its money in an audit client of Elbert, Elbert in essence has a material investment in an audit client. Simply because the mutual fund's investment has increased dramatically in the audit client does not mean there is a material investment, however. For example, it may have increased from one percent to three percent of the total holdings of the mutual company. Nevertheless Elbert must evaluate whether the holding could be a material indirect investment under Rule 101. It is essential that Finigan retain both an attitude of independence in fact and in appearance. It is not possible to determine if Finigan is maintaining an attitude of independence in fact, given her involvement in the company, but it is certainly possible that she is. Finigan is not necessarily violating the Code of Professional Conduct. She does the audit, tax return, bookkeeping and management services work for the client, but that is not a violation if Gilligan is a private company.
6.

It is questionable whether Finigan is maintaining an attitude of independence in appearance, especially given the comments by Gilligan. It is essential that she maintain an attitude of independence throughout all her work. So she must be careful that she is not on the side of Gilligan without consideration of her professional responsibilities in conducting the audits and in all other aspects of her professional responsibilities.

4-28 a. It's an ethical dilemma for Barbara because she has a decision to make about what behavior is appropriate. If she throws the schedules away, as suggested by her supervisor, she may not be carrying out her professional responsibility to the public or the client. If she does not throw the schedules away, she will likely cause a confrontation between herself and her supervisor. (1) Relevant facts: A number of misstatements were discovered. The aggregate amount of all discovered and undiscovered misstatements may be material. The audit supervisor wants Barbara to throw away some of her work. (2) Ethical issues: Is it ethical to throw away the schedules containing some small misstatements when her supervisor instructs her to do so? (3) Who is affected and how?
b.

WHO IS AFFECTED? Barbara

HOW? 1. Being asked to ignore misstatements is a possible violation of Rule 102. 2. Performance evaluation may be affected. 3. Future with firm may be affected. 1. Future with firm may be affected. 2. Performance evaluation may be affected. 1. If audit is completed late, they may lose the engagement. 2. May be sued if material misstatements are not detected. 3. Client may be unhappy with auditor if misstatements are subsequently discovered. 1. May not have opportunity to correct misstatements if they are not brought to light. 2. May be required to adjust financial statements if misstatements exist.

Jack

Green, Thresher & Co., CPAs

Delancey Fabrics

(4) Alternatives a. Throw away schedules. b. c. d. e. Inform Jack that she will not throw schedules away. Talk to manager or partner about Jack's request. Refuse to work on the engagement. Quit the firm.

(5) Consequences (a) The misstatements may be discovered subsequently and the firm may lose the client, or be sued. Even if the misstatements are not material, the client may be justifiably upset because the problems giving rise to the misstatements may have been solved sooner. (b) Barbara informs Jack that she won't throw away schedules. This may result in a confrontation. She may get an unfavorable review. (c) If she talks to the manager or partner, they may admire Barbara's attempt to be ethical, or they may think she is out of line for bypassing Jack's authority without discussing the matter with him in detail. (d) If she refuses to continue on the engagement, it will not look good on Barbara's record. She may be labeled as "hard to get along with." (e) If she quits, she will likely miss out on some potentially valuable experiences in public accounting. (6) Appropriate Action Only Barbara can decide. One reasonable approach is for Barbara to start by discussing the matter further with Jack. She should listen carefully to his reasoning and express her reservations about throwing the schedules away. She should not subordinate her judgment to Jack, as this would be a

violation of Rule of Conduct 102. If Jack satisfies her that it is acceptable to throw the schedules away (this seems unlikely in the circumstances), then she may be justified in doing so. However, if she still has reservations, she should inform Jack that she intends to contact a manager or partner. 4-29 Practitioners voluntarily agree to abide by the Code as they enter public practice. It is imperative that individuals at least comply with the minimum standards specified by the Code of Professional Conduct, despite pressures one may face. Concealing a known material misstatement in a client's financial statements is clearly a violation of a practitioner's responsibility to society. b. Bob Smith in essence condoned Oake's behavior by doing nothing. His inaction is worthy of sanction by his firm, the ICAB, and the state Board of Accountancy. c. At a minimum, practitioners must draw the line by complying with the Rules of Conduct specified in the Code of Professional Conduct. Violations of the Code are not acceptable. Hopefully, most practitioners strive to uphold the ethical principles specified in the Code of Professional Conduct.
a.

4-30 1. a. b.

Relevant Facts Frank believes the revenue recognition method is inappropriate. The partner believes the revenue recognition method is appropriate.

2. Ethical issue: Is it ethical for Frank to conceal his disagreement with the partner by not writing a statement which follows the requirements of SAS 22 (AU 311)? 3. Who is affected and how? WHO AFFECTED? Frank IS HOW? 1. Promotion, future pay, and ability to meet personal financial obligations may be affected. 2. His relationship with partners and clients may also be affected. 1. Promotion, future pay, and ability to meet personal financial obligations may be affected. 2. Her relationship with partners and clients may also be affected. 1. The firm faces potential liability if an improper decision is made regarding revenue recognition. 2. May lose the audit client. 1. Decision may affect the client's ability to obtain financing. 2. Decision may affect stockholder perceptions of management performance. 1. Decision may affect individual decisions related to investments in Machine International.

Partner

The firm, Bright & Lorren The client, Machine International Users of Machine International's Financial Statements

4. Alternatives a. Write a statement and inform other partners if engagement partner refuses to include the statement in the audit files. b. Agree with the partner. 5. Consequences

a. If Frank agrees with the partner, a potentially inappropriate accounting method may lead to an unqualified opinion on materially misstated financial statements. b. Other partners may be upset with Frank for failing to disclose his feelings on the matter. c. The firm could be sued and suffer losses. d. On the other hand, perhaps the partner is right and the revenue recognition method is appropriate. e. If Frank writes the statement and expresses his disagreement, he may be labeled as "hard to get along with." However, most firms which do high-quality audit work encourage practitioners at all levels to express their views on matters which require professional judgment such as the appropriateness of a given accounting principle. Appropriate action: Frank should express his opinion, leaving room for the possibility that he may be wrong. He should be respectful of the position of all other partners in the firm. Most, if not all, of the other partners in the firm would probably appreciate Frank's willingness to express his opinion regarding the inappropriateness of the revenue recognition method used by the client.
6.