Cases on Code of Ethics

1. Knowledge of the rules of conduct and related interpretations on independence, integrity, and
objectivity will help you respond to the following cases. State whether the action or situation shows
violation of the Revised Code of Ethics for Professional Accountants, explain why, and cite the
relevant rule or interpretations.

CPA Ong’s wife owns 20 percent of the common stock of Botanie Company, which wants Ong to
perform that audit for the calendar year ended December 31, 2017. Ong’s wife gave her stock to
their 10-year old daughter on July 1, 2017. Ong’s daughter, acting through an appropriate
custodian, sold the stock to her grandfather on August 1, 2017. His purchase, as an
accommodation, took one half of his retirement savings.

2. The accounting firm involved in this case wants to know if their independence will be
questioned by the BOA. You have been asked to submit an analysis and conclusion.

Franklin Rosario is an audit manager in the Salvador & Santos accounting firm. He has just been
assigned to the audit of the Starex Money Market Fund. Franklin has maintained a money market
account with SMMF since it opened in 2008. All his savings, amounting to 75 percent of his total assets,
are in this account, which pays the highest interest available in money market funds. However, his
account constitutes only .00001 percent of the fund’s assets.

3. Jaypee Wave, CPA, a partner of LPS & Co. was engaged to audit the financial statements of
Aldana Corporation, Wave had half-completed the audit when he had a dispute with the management
of Aldana Corporation and was discharged. Beverly Amparo, CPA, a partner of Guzman Lim & Co. was
promptly engaged to replace LPS & Co. Aldana Corporation did not compensate LPS & Co. for their work
to date; therefore, Wave refused to allow Aldana Corporation’s management to examine their working
papers. Certain of the working papers consisted of adjusting journal entries and supporting analysis.
Aldana Corporation’s management had no other source of this information. Did LPS & Co. violate the
Revised Code of Ethics for Professional Accountants? Explain fully.

Caselets on Code of Ethics

4. Knowledge of the rules of conduct and related interpretations on independence, integrity, and
objectivity will help you respond to the following cases. State whether the action or situation shows
violation of the Revised Code of Ethics for Professional Accountants, explain why, and cite the relevant
rule or interpretations.
CPA Angela Carnice performs the audit of the local symphony society. Because of her good work, she
was elected as honorary member of the board of directors.

5. The accounting firm involved in this case wants to know if their independence will be questioned by
the BOA. You have been asked to submit an analysis and conclusion.

Concepcion Esperanza Orozco & Co., (CEO & Co.) loaned a senior accountant to its audit client, United
Furniture, Inc., for a six-week period ended June 15, 2013. United had converted its accounting system
from manual to computerized processing as of January 1, 2013, and had experienced great difficulty.
The senior accountant reviewed and analyzed the records and helped the new controller correct the
accounts as of March 31, 2013, and to get the computer processing straightened out. The work involved
collecting and summarizing data into machine-usable form and did not involve any managerial decisions
about the manner of classifying or recording transactions. No one from CEO & Co.. was involved in the
company’s accounting and bookkeeping after June 15., and the firm does not intend to provide such
services to United in the future. The question of independence relate to the audit for the year ended
December 31, 2013.

6. On August 20, 2013, Eugene Valdez, CPA and partner of Ocampo Tanyag & Co., was offered and
accepted the engagement to audit the annual financial statements of Blanco Corporation for the fiscal
and calendar year ended December 31, 2013. The audit began on September 15, 2013, and ended on
March 7, 2014. Blanco Corporation is regulated by the SEC. Valdez served as controller of Blanco
Corporation from November 5, 2009 until January 10, 2013, at which time she terminated her
employment with Blanco. Valdez owned a material amount of Blanco Corporation’s common stock from
November 5, 2009 until August 15, 2013, at which time she sold the stock. Violation of Code of Ethics?
Yes or No? Explain.

7. Knowledge of the rules of conduct and related interpretations on independence, integrity, and
objectivity will help you respond to the following cases. State whether the action or situation shows
violation of the Revised Code of Ethics for Professional Accountants, explain why, and cite the relevant
rule or interpretations.

Marie Paira, a retired partner of your CPA firm, has just been appointed to the board of directors of
Palm Corporation, your firm’s client. Paira is also an ex officio member of your firm’s income tax
advisory committee which meets monthly to discuss income tax problems of the partnership’s clients,
some of which are competitors of Palm Corporation. The partnership pays Paira P 1,000 for each
committee meeting attended and a monthly retirement benefit, fixed by a retirement plan policy, of P
10,000.
8. The accounting firm involved in this case wants to know if their independence will be questioned by
the BOA. You have been asked to submit an analysis and conclusion.

On March 31, 2013, Ignacio Corporation bought the Laser Division of Trinidad Inc. Ramos Sunga & Co.
has been the auditor of Ignacio six years. Since March 1, Ramos Sunga & Co. has performed
controllership accounting work on the Laser Division books because the records were in terrible shape.
The next SEC filing, due March 30, 2014, is supposed to contain three years of audited financial
statements of the Laser Division. Ramos Sunga & Co. had no connection with Trinidad prior to March 1,
2013. Jerome Ramos is worried about any independence question relating to the calendar years 2011,
2012, and 2013 concerning his client relationship with Ignacio since his firm has been performing
bookkeeping for the Laser Division. The division will amount to 27% percent of the total assets and 32
percent of the revenue and net income of Ignacio for the year ended December 31, 2013.

9. The accounting firm of Lopez & Parilla, CPAs, is negotiating a fee with a new audit client. They agree
the client will pay P 75,000 if Lopez & Parilla issues a clean, unqualified opinion, P 50,000 if a qualified
opinion is issued, P 40,000 if an adverse opinion is issued, and P 10,000 if a disclaimer of opinion is
issued. Violation of Code of Ethics? Yes or No? Explain.