Contemporary Auditing, Knapp Case 4.4 – Thomas Forehand, CPA By Ernst & Young
1. hat pro!ess pro!essiona iona"" standards standards are are re"e#ant re"e#ant to $"ient $"ient a$$eptan$e a$$eptan$e de$isio de$isions% ns% hat hat genera" genera" prin$ip"es do these standards suggest a$$ounting irms shou"d app"y in arri#ing at $"ient a$$eptan$ a$$eptan$e e de$isions de$isions%% 'denti!y 'denti!y spe$ii$ spe$ii$ measures measures that a$$ountin a$$ounting g irms irms shou"d shou"d ta(e )e!ore de$iding to a$$ept a potentia" $"ient.
The Statements on Quality Control Standards (SQCSs) are the professional standards relevant to client acceptance acceptance decisions. Within the SQCSs, is a section section on acceptance and continuance continuance of client relationships relationships and speciic engagements. engagements. It suggests policies and procedures procedures should e estalished to provide reasonale assurance that! a) The The li"e li"eli liho hood od of asso associ ciat atio ion n #ith #ith clie client ntss #hos #hose e mana manage gers rs may may lac" lac" inte integr grit ity y is minimi$ed, ) The The irm irm unde undert rta" a"es es only only enga engage geme ment ntss it e%pe e%pect ctss to comp comple lete te #ith #ith prof profes essi sion onal al competence, and c) It approp appropriat riately ely consid considers ers the the ris" of provid providing ing service services. s. The factors that affect the auditor&s decision to accept or retain an audit client are! 'anagement integrity Independence and competence of management and the oard of directors The uality of the organi$ation&s ris" management process and controls *eporting reuirements, including regulatory reuirements +articipation of "ey sta"eholders %istence of related-party transaction The inancial health of the organi$ation
The auditor can gather information to gain an understanding understanding of the aove factors from previous auditors, prior-year audit e%perience, independent sources of information, intervie#s #ith "ey employees, and past regulatory ilings.
*. Assume Assume that you you +ere +ere Thomas Thomas Foreha Forehand. nd. o+ o+ +ou"d +ou"d you ha#e ha#e respon responded ded to the the -"oan -"oan proposition proposition "aid out )y /ohn /ones% 0o CPAs CPAs ha#e a pro!essiona" pro!essiona" or mora" responsi)i"ity to report i""ega" a$ts $ommitted )y $"ients or potentia" $"ients%
If I #ere Thomas orehand I #ould have thro#n /ohn /ones out of my ofice. I #ould not have gotten involved #ith this type of crime. Thomas uilt his #hole life to ecome a C+0 and had a #ife and children. ecause of this, I #ould deinitely not have involved myself #ith this shady character that I "ne# nothing aout. I thin" it #ould have een selish and unethical to have done #hat Thomas orehand did. 1o#ever, if it #as me I #ould have ended our relationship there. I #ould have told /ohn /ones to leave and not contact me anymore. I #ould not have informed anyone else and the main reason is, I #ould not have "no#n #here the money #as coming from and the fact that illegal drugs #ere involved. If I #ould have "no#n this, then maye I #ould have informed the authorities. 0ccountants I feel do not have a professional oligation oligation to inform the authorities of illegal activities. *athe *atherr, they they have have a moral moral oliga oligatio tion. n. *ule *ule 234 of the 0IC+ 0IC+0 0 Code Code of +rof +rofess ession ional al Conduc Conduct t
(Conidential Client Information) states! 0 memer in pulic practice shall not disclose any conidential client information #ithout the speciic consent of the client. (0IC+0, 4552, Section 234). 0ccountant-Client conidentiality is a very sensitive su6ect. 1o#ever, according to raud 'aga$ine, there is no speciic rule or la# that says an accountant has to disclose fraud or illegal acts to the authorities. 0ccountants do have a moral responsiility to report any fraud or illegal acts. veryone has a moral responsiility to report fraud or illegal acts. If #e see crime or hear of crime, especially something li"e illegal drugs eing sold, #e should all #ant these people to get caught and put into 6ail.
. 'denti!y the parties +ho +ere a!!e$ted )y Forehand2s de$ision to $ooperate +ith /ohn /ones. hat responsi)i"ity, i! any, did Forehand ha#e to ea$h o! those parties% 'ndi$ate ho+ ea$h o! those parties +as a!!e$ted )y Forehand2s de$ision.
The follo#ing #ere affected y orehand&s decision to cooperate #ith /ohn /ones! 1imself- orehand had the responsiility to protect his name. 0s a C+0 he uilt up his crediility for years to only end it #ith this thoughtlessness act. 1is ehavior also had a negative impact on the accounting profession. 1is mployees- orehand hand the responsiility to protect the careers of his employees. In result of the situation orehand&s employees ended up loosing their 6os. 1is family-orehand had a responsiility to provide for his #ife and children. y engaging in this act orehand #as sentence to si% years in federal prison, ined 745,333, and reuired to forfeit the 783,333 of cash received from /ones. This affected his family&s livelihood and denied his children of having a father present.
4. Thomas Forehand did not intend to )e$ome in#o"#ed in $rimina" a$ti#ity +hen he met /ohn /ones. 'nstead, /ones goaded Forehand into )e$oming an a$ti#e parti$ipant in his money3"aundering s$heme. hat strategies $an CPAs and )usiness peop"e use to pre#ent themse"#es !rom stepping onto a -s"ippery s"ope that may e#entua""y resu"t in them )e$oming in#o"#ed in unethi$a", immora", and possi)"y $rimina" $ondu$t%
There are very simple strategies that C+0s can employ to not go do#n this 9slippery slope: and ecome involved in unethical, immoral, and possily criminal conduct. ;ne #ay is to not do #hat Thomas orehand did. 1old yourself to higher standards and 6ust say no #hen you elieve a situation is unethical or calls your responsiilities as C+0 into 6eopardy. I "no# it is easy to say that #e #ill all do #hat is right #hen #e are on the outside loo"ing in, ho#ever it #ill protect us from anything criminal or #rong. It is very easy not to go do#n this 9slippery slope:.
al#ays get caught in the end and your name #ill e one of the people eing investigated y the SC. The easiest #ay to not go do#n this 9slippery slope,: is to not step on that slope in the irst place.
