In Class # 2.1
Linda is the managing partner of a small CA audit firm. Linda’s role includes managing the
business affairs of the firm, and she is very worried about the amount of fees outstanding from
One client, Dreamers Ltd. has not paid its audit fees for two years despite numerous discussions
between Linda, the audit partner, Bill, and the management of Dreamers Ltd. Dreamers Ltd.’s
management promised the fees would be paid before the audit report for this year was issued.
Linda called Bill this morning to ensure that the audit report was not issued because Dreamers
Ltd. had paid only 10 percent of the outstanding account. She discovers that Bill is about to sign
the audit report.
Is there an ethical problem in this case? Explain In Class # 2.2
(a) Adnan is a CGA working for a large national audit firm. He is at his desk when he
overhears his colleague Joan having a phone conversation. She is telling the person on the
other end of the call that Gupta Co., the firm’s largest audit client is about to release the
company’s audited annual financial statements and the results are spectacular. Joan says
she just bought some shares as she expects that the share price will go up.
(b) John Drake, a partner at Drake and Buetz, is meeting with a potential new client. The
client recently saw the firm’s TV advertisement claiming that the firm was “the premier
accounting firm in Western Canada.” The client requires a review engagement report with
its financial statements to obtain a bank loan. John advises that his fee will be 10 percent
of any bank loan granted.
(c) Sue Chen, CA, is working on the audit engagement for Jones Construction, a reporting
issuer (note: a reporting issuer is a public company with a market capitalization and a
book value of total assets greater than $10 million). Jose, the accountant at Jones
Construction, is unsure how to calculate the tax provision. Sue has advised Jose not to
worry. She will prepare the tax provision and ensure that the disclosures are in accordance
with generally accepted accounting principles (GAAP) so that she can issue a clean aud