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Alvez, Jane Lee, Caroline AC 526

Cuevas, Michelle Macalalad, Ryan Kerstan TTH (4:30-6:00pm)

Guerra, Paola Dawn Sasam, Ricahbel
Lavega, Dane Myrrile Secormayle, Kitz

Case 1
All significant matters relating to the results of the engagement are to be communicated to the client.
Nondisclosure of such result would only make the consultant part or accessory of such crime or fraud.
Perhaps, the first step is to report the matter to the chairman of the board or others of equivalent
authority. Next is to determine whether we have the requirement to report the matter to regulatory
authorities or external body such as the Securities and Exchange Commission, Justice Department,
Bureau of Internal Revenue, or the shareholders.

Case 2
The action to be taken depends on the following:
a) If the president is the owner of the privately held company, there should be a discussion with
the president since he, as the owner, can make the decision.
b) If the president holds a controlling number of shares in a company with several shareholders,
discussion with the president must also be made. The problem will be resolved if the president
accepts the recommendation and resigns. If he rejects, the matter will be discussed with the
chairman of the board and the board of directors.
c) For a large publicly held company, the responsibility to discuss the matter first with the
president must be taken into consideration. It is unwise to step over the president and go
directly to the chairman of the board.

Case 3
As a consultant who values honesty, the most ethical solution is to tell it as it is. The appropriate way to
solve this matter is to make a full disclosure to the president privately and discuss to him the vast
growth of the company and the massive changes in technology that have occurred because of the
system he had installed as a controller. If he understands the danger he is putting himself into, he
probably will agree to go forward. If he doesnt, at least I have accomplished my task the way it should
be done and this is a privately held company in which he has control but if the case is in a publicly held
company, reporting the problem to the chairman of the board is a must especially if the impact of the
annual report is serious.

Case 4
Whats the use of having a profitable contract if it has only a 50 percent chance that the outcome would
be desirable? Well, professional ethics requires that we are to accept only those engagements which are
felt to be beneficial to the client. In this case where we only have a quiet low percent chance that the
project would be beneficial to the client, probably its better to decline the engagement and suggest
that the client could perhaps set aside the money and use it for a feasibility study not for expansion but
to employ an advertising firm to help them sell the bonds.

Case 5
As a consultant, we are responsible to have integrity, objectivity and even independence as we practice
our profession. I should not serve clients under terms or conditions that might impair those
responsibilities because ethical conduct requires us to not misrepresent facts and never subordinate
judgment to others and in this case I should reserve the right to withdraw if conditions develop that
interfere with successful conduct of the assignment.

Case 6
Ethical Considerations must be taken into account in performing Management Advisory Services.
Professional ethics require honesty, integrity, and placing the interests of the client ahead of personal
interests. Being an internal accountant is not different to an external once as long as the task is
performed with independence. In the recommendation, I must eliminate my personal interest and keep
myself from any influences as I render the consultation. As long as the task is carried on with
professional competence and due care, and based on the available facts then the task was performed

Case 7
The code of ethics doesn't prohibit me from accepting engagements like this because the business itself
is allowed by the law. But the fact that the nature of the business is something that conflicts with my
values and I know for a fact that no matter how I try to detach my beliefs from work and just be
completely professional, I could still be subjective and could not deliver the expected output of my

So in this case, I would communicate my issue with the company and let them decide if they would still
want to avail of the services of my firm but with the services and expertise of my other consultants with
no conflicting personal doctrine as to the nature of the business of the company or if they would just
cancel the services of my firm.

Case 8
This plan is disreputable under professional ethics. A consultant, I should not pay a fee or commission to
obtain a client or franchise a business practice. The fact that the client came first and the commission
came second in this case makes no difference. The commission is being paid to franchise a business
practice and doing such would violate the main purpose of the establishment of the firm. In deciding
whether or not to accept any engagement is a matter of professional behavior- professional accountants
must comply with relevant laws and regulations and avoid making actions that would later discredit the
Case 9
It is unethical for me, the consultant-director to think of such especially that I am on the top
management and I should be a role model to everyone. The position as a director provides me a
significant influence over the direction of the company. So it is inherent therefore that I must do what is
best for the company. As compared to the responsibility to the firm, it is my duty to secure employment
for the people working in the firm. By being both director and consultant for the same company, it is a
position that creates a conflict of interest, which is in violation of the code of professional ethics.
Another thing is my planned conduct in the upcoming board meeting. It is not honest and ethical for me
to remain silent when I have relevant information on a decision. I have a responsibility to express my
honest thoughts about the proposed engagement even if it means losing such.

Thus it is to better to resign from the board of directors and become an advisor to the chairman. I
should be able to point out and communicate what I think about the installation of the sophisticated
system at this time. Ill leave the decision-making process to the board then since they can make an
objective decision based on the available facts.

Case 10
(a) The parties directly affected by Leos decision are the two clients in that they will either split
the expenses or each will pay for them in total. They are affected because they would be
paying hypothetical fees, or fees not actually incurred. Furthermore, if the two clients
consulted the firm to help improve their condition, and both the clients are wrongfully billed
in whole, then the consultant is not fiscally helping the client achieve its objective.

(b) Yes. If the clients discover that Leo has requested reimbursement from both of them, it may
provide them the junior consultants in that consultancy firm lack ethical values. The
consultancy firm is only a medium sized firm for now, which means that it has a great
potential for growth. It is only a matter of accepting and performing engagements well,
developing long term relationship with clients, and establishing proper fee levels. Double
billing, as in this case, is not in pursuant with establishing proper fee levels, which means
that it could affect the firms growth. No firm wants to have a reputation for over billing.

(c) Yes. If the clients discover that Leo has requested reimbursement from both of them, it may
provide them with the impression that the consultancy firm is not observing proper ethical
values. The firm cannot have employees that double bill. If this happens, the firm can lose
not only potential clients, but existing clients. As a consequence, the firm could suffer severe
losses which could affect remuneration and ultimately, could cause them their jobs.

(d) Obviously, the ethical course of action is to split the expenses between the two firms. If
either client found that Leo requested total reimbursement from both of them, it is highly
unlikely that he would receive an offer of employment. Also, expenses that were incurred
exclusively for one client must only be billed for that respective client. Transparency will be
observed throughout the engagement, which is why a cover letter with a Statement of
Expenses will be sent to the clients.

(e) I will still show them the cover letter with a Statement of Expenses, showing the actual
amounts incurred. Their excess payments will be graciously returned, but if they insist that
we keep it, we will. Since the client is aware of the over payment and yet they consented
that we keep it, it only means that they have determined the value of the finished
engagement to be worth the investment.

Case 11
(a) Either Zabio or Zorro did not violate the Code of Ethics for Professional Accountants by providing
the said services. Because Darlene Zabio does not perform financial statement audits, reviews or
certain compilations or prospective financial information examinations for Wee Corporation,
she may offer to perform the service on a contingent fee basis. Although Bill Zorro performs
audits for Wee Corporations financial statements, his firm may still perform such services for
the fixed fee of 30,000.

(b) Performing the engagement would be a violation with the terms of the Code of Ethics for
Professional Accountants for it prohibits the performance of such services for a contingent fee
when the public accounting firm performs financial statement audits for the client. Therefore,
Zorro cannot provide the service for a contingent fee without violating the Code.

(c) If Wee Corporation was a SEC registrant company, Zabio may still provide the service on a
contingent fee basis. However, Zorro cannot provide the service even for a fixed fee since the
Code of Ethics for Professional Accountants prohibits the provision of financial information
systems design and implementation services for an audit client. This would impair the
independence if the engagement is taken by Zorro.

Case 12
a) As the auditor, I should inform the company of the error which resulted to underpayment and
propose that an adjusting entry be made to increase the amount of the furniture and fixtures to
its correct amount as well as its accounts payables.

b) Omission of the unpaid portion of the liability in the statements of Western Showcases
constitutes dishonesty and willful misrepresentation on my part thus resulting to misleading
financial statements and that is the last thing I would want to happen as an auditor. In order to
meet the adequate disclosure requirements, I have to make the company include the payables
in its FS. However, to force the company to pay Rojo is no longer within my control because if
they would really refuse, I can't go on marching to Rojo and inform them that Western
Showcases has an unpaid balance and then they would be the one to demand for payment
because of confidentiality matters between me and my client company.

Case 13
(a) Thea Mendoza must first assess her relationships with the corporation and determine whether
her opinion would be considered independent by someone who has knowledge of all facts
before expressing her opinion on the financial statements of Mayfair Corporation. As a CPA, she
must maintain strict independence of attitude and judgment in expressing an opinion on the
financial statements. Although the CPAs services in this situation consist of advice and technical
assistance, the management still retains its responsibility to make managerial decisions. There
will be a conflict of interest in the mere fact that aside from rendering an opinion on the
financial statements, the CPA also applied her technical knowledge and skill to the improvement
of managements planning, control, and decision-making processes. There will also be an
impairment of the objectivity in considering internal control if the computer recommended by
the CPA involves a material expenditure of funds by the corporation since she herself made such

(b) It would just be proper for Mendoza to accept the commission with the clients approval, as
stated in paragraph 240.5 of the Code of Ethics for Professional Accountants in the Philippines
which provides that: In certain circumstances, a professional accountant in public practice may
receive a referral fee or commission relating to a client. For example, where the professional
accountant in public practice does not provide the specific service required, a fee may be
received for referring a continuing client to another professional accountant in public practice or
other expert. However, accepting such referral fee or commission may give rise to self-interest
threats to objectivity and professional competence and due care. But paragraph 240.4 of the
Code of Ethics also provides that the significance of such threats should be evaluated and, if
they are other than clearly insignificant, safeguards should be considered and applied as
necessary to eliminate or reduce them to an acceptable level. One of the safeguards includes an
advance written agreement with the client as to the basis of remuneration and the like.

Case 14
Arguments for restricting nonattest services for audit clients

1.) It is not possible for the auditors to objectively evaluate their own nonattest work as it
relates to the audit. (Self-review)
2.) The additional fees derived from nonattest services serves as an additional threat to
3.) Independence of mind and independence in appearance must both exist.
4.) Only services that will allow the CPA to maintain integrity and objectivity must be accepted.
Arguments against restricting nonattest services for audit clients

1.) Auditors have been providing nonattest services for audit clients for years in an objective
2.) The additional knowledge of the client obtained from performing nonattest services actually
enhances the performance of an audit.
3.) As long as the client establishes effective oversight over the performance of the nonattest
services, the auditors can perform them in an objective manner.

Opinion on the restriction of the performance of nonattest (consulting) services for audit

We are for restricting nonattest services for audit clients.

The rule is clearly emphasized in the Code of Ethics for Professional Accountants in the
Philippines. In order to maintain public trust and confidence in the accounting profession,
professional accountants must adhere to standards of ethical conduct: standards of conduct
that embody and demonstrate integrity, objectivity, and concern for public interest rather than

Performing nonattest services for an audit client that affect the preparation of the financial
statements will create a self-review threat. To do so would violate the basic concept that one
cannot act independently in evaluating his or her own work.

The additional fees derived from nonattest services serves as an additional threat to
independence. These may give rise to a self-interest threat to objectivity.

There are two phases of independence; the independence of mind and the independence in
appearance. Independence of mind is the auditors perception of his own independence. A state
of mind that permits the expression of a conclusion without being affected by influences that
compromise professional judgment, allowing an individual to act with integrity, and exercise
objectivity and professional skepticism. On the other hand, independence in appearance refers
to the publics perception of the professional accountants independence. It is the avoidance of
facts and circumstances that are so significant that a reasonable and informed third person
would reasonably conclude that the firms integrity, objectivity and professional skepticism had
been compromised.

The Code of Ethics does not only require the professional accountants to maintain
independence in mental attitude, but professional accountants should also avoid circumstances
which would cause the public to doubt their independence.

Nonattest services could be provided by a number of firms. It may not stick to only one firm to
provide for all the services it needs, be it audit, consulting, or any other. On the other hand, for
certain types of valuation, appraisal, actuarial and information-technology-related services,
members may not perform these services if they will have a material effect on the clients
financial statements and the service involves considerable subjectivity. The rules also prohibit
members from designing a clients financial information system by creating or changing the
computer source code underlying the system. If members make any such modifications, they
cannot be more than insignificant.

Case 15
There are three bases for a CPA to have liability to clients.
1) breach of contracts
2) a tort action for negligence
3) both

Under common law, in general, the client must prove the following to establish CPA liability:
Duty - acceptance of duty to exercise skill, prudence and diligence
Breach of duty - CPA breached that duty
Loss - a loss suffered by the client
Causation - CPA's negligent performance resulted to loss
In the situation presented, the elements mentioned above might be proven in a case against Ju & Grace
given the fact that inexperienced staff assistants operated without sufficient supervision.

Case 16
(a) In our opinion, we can advise these arguments and be considered for the grossly over prized
properties in favor to Silver Plus:

At first glance, you can say that the possibility of fraud is very high and as a consultant
partner of Millennium Resources, it is presumed that we have information regarding the
matter. If we dont act and just keep our mouth shut, it is as if we are aiding the fraud or
giving our approval on the said transaction.

With Silver Plus paying on the grossly over prized properties will surely result to a huge
loss on their part. We, a consultant partner who has knowledge regarding the matter, has
the ability to prevent that from happening. Remaining silent proves that we lack
professional care to Silver Plus.

The standard says that unproved properties are acquired and capitalized at acquisition cost
when incurred. Whether the properties contained proved oil and gas reserves is unknown at the
time of acquisition. In this case, however, we have reasonable evidence that the said properties do
not contain significant oil and gas reserves and was already subject to impairment resulting to
writing it down at a carrying value below 15 million to avoid overstatement of assets.

Upon purchase of the properties by Silver plus, we would still need to advise Silver Plus to write
the asset down to an amount below 15 million which would be difficult for us considering that we
have knowledge to that particular amount even before the purchase.
If we advise that Silver Plus write these properties down Silver Plus will probably sue us
and allege that our silence was the probable cause of their loss

(b) The following arguments might be advanced in favor of not offering advice to Silver Plus:

Giving information to Silver Plus would violate our ethical responsibilities to Millennium
Resources for confidentiality.

The transaction price in the purchase or sale of assets is a managerial prerogative. It is

inconsistent with the role of the independent auditors to intervene because they believe
one or the other of the transacting parties is receiving a bad deal.

We are not experts in the value of oil and gas properties, which is highly speculative by
any standards. It may turn out that these properties are a bargain at P42 million.

As far as we know, Millennium Resources has not made any misrepresentations of fact or
violated any laws. We have no right to intervene in a transaction merely because we
believe that our client is about to earn a surprisingly large profit.

If we offer our opinion of the value of the properties to Silver Plus, Millennium Resources
will probably sue us for breach of confidentiality.

There is certain autonomy between offices of a national firm. Millennium Resources is a

client of the Cebu office, while Silver Plus is not. If Silver Plus were the client of another
CPA firm, it is doubtful that we would even consider the possibility of alerting the other
auditors or their client as to our opinion of the economic value of the properties.

(c) Arguments from part (b) influenced us the most on the course of action we should take. We
consider it to be totally inconsistent with the role of an independent auditor to intervene in a
transaction between a company and its customers on the premise that the auditors have a "greater
wisdom" than the transacting parties. Millennium Resources is not, to the auditors' knowledge,
doing anything illegal. Furthermore, all of the information at the auditors' disposal is confidential.
Barring a flagrant violation of the law by one of the transacting parties, we do not believe that
auditor shave either the legal responsibility or the right to interject their unsolicited opinion into
the business transaction of audit clients.