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Accounting Ethical Dilemmas and Responses




Question;NO. 7Hamilton Company underwent a major product recall. This recall was primarily responsiblefor the company showing a significant loss on its income statement for the current year. Thecompany has had product recalls before, but management believes the cost of the recallshould be treated as an extraordinary item because of its magnitude. The CPA in charge of theaudit concurs with managements treatment concerning the product recall.ResponseAn extraordinary item is defined as an event or transaction that is consideredabnormal, not related to ordinary company activities, and unlikely to recur in the foreseeablefuture. The reporting of an extraordinary item should be an extremely rare event(Accounting Tools, 2014). Since Hamilton Company has had product recalls in the past andare likely to have them in the future, this should not be treated as an extraordinary item, evenif the its magnitude is greater than it has been in the past.Reporting this item as extraordinary would go against the AICPAs Code ofProfessional Conduct. If the CPA did not know that this should not be classified as anextraordinary item, he or she would not be exercising competence, which is presented inSection 56, Article V of the Code. If the CAP was aware that this was not an extraordinaryitem and tried to present it as such anyway, that would be against the accountants integrity,which is presented in Section 55, Article III of the Code.NO. 8A CPA has been selected as auditor for a federally subsidized housing complex. Theengagement contract required that such audits be in compliance with government auditstandards as well as generally accepted auditing standards. The CPA is unfamiliar with theparticular government audit requirements but conducts an otherwise satisfactory audit, inaccordance with generally accepted auditing standards, and is considering issuing anunqualified report.ResponseEven if the auditor follows generally accepted auditing standards, if there is a gap intheir knowledge, they are behaving irresponsibly by performing that audit. This audit shouldbe given to another CPA at the firm who has knowledge of government audit standards. Ifthere is no CPA at the firm with this knowledge, the firm should reject the client.Conductingthis audit without knowledge of any of the standards requires for the audit is irresponsible. Inthe AICPA Code of Professional Conduct, Section 56, Article V, it is clearly stated that a CPAmust exhibit competence. If the CPA does not have knowledge of some of the standardsrequired, the CPA is not exercising competence, which goes against the Code.Reply with your opinion whether you agree or disagree. Also, response your opinion with support


Paper#38917 | Written in 18-Jul-2015

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