Chapter 4 Review Exercises Solutions.docxVIP

Chapter 4Professional EthicsDiscussion Questions And Problems4-20SERVICEVIOLATION?a.Providing bookkeeping services to a public company. The services were preapproved by the audit committee of the company.Yesb. Providing advice to a private company client on accounting for a merger with another private companyNoc.Providing internal audit services to a public company that is not an audit client.Nod.Implementing a financial information system designed by management for a private company.Noe.Recommending a tax shelter to a client that is publicly held. The services were preapproved by the audit committee.No *f.Providing internal audit services to a public company client with the preapproval of the audit committee.Yes*Recommending tax shelters is not prohibited as long as the service does not meet the characteristics of an abusive tax avoidance strategy and does not have the potential to impair independence.4-22a.Violation of Rule 101 – When audit firms create a network with other firms to share certain characteristics, such as the sharing of audit methodologies and audit manuals, interpretations of Rule 101 require each network firm to be independent of audit and review clients of other network firms. The ownership by Miller and Yancy, who are partners in one of the network firms, in the stock of a client of another network firm would impair independence.b.Violation of Rule 501 – An interpretation of Rule 501 prohibits the inclusion of indemnification clauses and other limitations of liability provisions in engagement letters for audit and other attest services.c. Violation of Rule 101 – Only pre-existing mortgages provided by a new audit client that is a bank are permissible. No new mortgage loans are permitted, however.d.No violation – While Jennifer’s audit client has a material investment in Polex, her non-dependent parents’ investment in Polex represents an indirect financial interest that is not material to her parents or Jennifer.e.No violation – Because Joe has