SOLUTION: Cuyamaca College Business Law Essay

Ethics in Accounting
ACCTG – 530
FINAL
Spring 2022
INSTRUCTIONS:
There are only two (2) short answer/essay questions to follow, but each has subcomponents. Each question is assigned a certain number of points, for a total of 100 points.
Answers will be scored on (1) correctly identifying the issue(s), (2) referencing appropriate
rules or authority when called for, and (3) most importantly, thorough and complete
analysis. When possible, you should make assumptions to keep your analysis going. If
there are differences in the rules under the AICPA Code, California rules, or other laws,
you should address any similarities or distinguish any differences.
The exam is open note, open book, etc. Avoid the temptation to copy-and-paste material
– answers will be scored primarily on your thorough and complete analysis.
Please email your answer as an attached Word or PDF document without your name.
Include your RedID on the attachment so they can be printed and graded anonymously
with all other exams.
Exams must be turned in before 5:00 p.m. on Tuesday, May 10, 2022.
Good luck!
FACTS:
Once upon a time, in 2010, Ava Alexander decided to form a mid-sized accounting firm located
in San Diego right after she graduated college to perform only tax services for her clients. Ava
Alexander was initially very successful because her marketing tag line was: “I’ve never lost an
IRS audit.” However, Ava Alexander never actually had, nor would she ever, represent a client in
an audit before the IRS or any other tax agency. She simply prepared their income tax returns. In
fact, Ava Alexander never herself took the CPA exam despite otherwise having the educational
experience.
From 2010 until 2012, Ava Alexander operated the firm under the name of “Alexander &
Associates Accounting Firm, Inc.” and brought on her first employee, Braxton Bennett, on July 1,
2012. At the time Braxton Bennett was just an accounting student but showed such potential that
Ava Alexander gave him a fifty percent (50%) equity interest in the firm on July 1, 2013, and
promptly changed the name of the firm to “Alexander, Bennett & Assoc., Inc.” Braxton Bennett
graduated and passed his CPA exam in 2015 and has worked with Ava Alexander at Alexander,
Bennett & Assoc., Inc. ever since.
Braxton Bennett would not be Alexander, Bennett & Assoc., Inc.’s only employee. As the firm
grew additional CPA’s and staff were added. First, Ava Alexander wanted to expand the firm’s
services to include audit and other attest engagements, so in 2016 she hired Cara Connor.
Cara Connor had spent the last five-years as a California licensed CPA and the controller of a
large, publicly traded company, “Dylan, Inc.” Dylan, Inc. manufactures pharmaceutical products
to treat often neglected tropical diseases like Dengue Fever, leprosy, and rabies. Dylan, Inc. was
run by an iron-fisted CEO named Owen Oliver. For example, in 2015 Owen Oliver and Cara
Connor flew from Dylan, Inc.’s New York headquarters to Panama for a meeting with that
country’s Minister of Public Health. At the meeting between Owen Oliver, Cara Connor, and the
Panamanian Minister of Public Health, Owen Oliver got upset and shouted in the Minister’s face:
“If you don’t buy our company’s drugs you just may not live to see another day!” Quick to act,
Cara Connor tried to smooth the relationship and told the Minster: “Look, he’s drunk. There must
be something we can do to convince Panama to buy our company’s life-saving drugs…? What if
we sponsor your World Cup soccer team? I hear you’re a big fan…” Despite saving the
procurement contract Cara Connor was left uneasy by the ordeal and hence her decision to leave
Dylan, Inc. for the greener pastures of Alexander, Bennett & Assoc., Inc. the next year.
Ava Alexander also added Ethan Easton, Fiona Freya, and Grant Griffin (all California licensed
CPA’s), and Henry Hudson and Ivy Iris (administrative staff personnel who had no prior
accounting experience) in 2017. Unknown to Ava Alexander, Ethan Easton moonlights as a tax
return preparer. Ethan Easton’s main area of expertise is preparing tax returns for strippers.
Because of the sensitive nature of their work, i.e., the large amounts of potentially unreported cash
income, Ethan Easton charges each stripper $15,000, per year, to prepare their tax returns. Ethan
Easton is further in the habit of making up dependents and arbitrarily changing his stripper/client’s
income to maximize their entitlement to certain tax incentives like the Earned Income Tax Credit.
But Ethan Easton is savvier than that. He frequently referred his stripper/clients to Dr. Paul Paddy
for all plastic surgery needs. In exchange for referring each stripper/client, Dr. Paul Paddy sends
Ethan Easton a bottle of wine and each year Dr. Paul Paddy takes Ethan Easton on his private
yacht for a weekend getaway trip to Catalina Island.
A seventh and eighth CPA, Kevin King and Landon Lincoln, respectively, also interviewed for
jobs with Alexander, Bennett & Assoc., Inc. in 2017. During the Kevin King’s interview, he and
Ava Alexander had the following exchange:
Ava:
Kevin:
Ava:
Kevin:
“What would make you a valuable member of my team?”
“Well…I’m very hard working, I have 5 years of audit experience, and I bring
a level of diversity that I think your firm is missing.”
“What!?!?!? What could my amazing firm be missing?”
“I’m gay, and it appears that nobody else on your staff is. That could be an
advantage.”
Annoyed – not at Kevin King being gay but at his statement that her firm was missing anything at
all – Ava Alexander decided not to hire him. The very next day she interviewed Landon Lincoln
during which the following exchange occurred:
Ava:
“What would make you a valuable member of my team?”
Landon: “I’m very hard working, I have 6 years of audit experience, and I love your
shoes.”
Ava:
“Well that’s so kind of you! We at Alexander & Bennett pride ourselves at
being a tight family. Is there anything about you that I should know before we
make a decision?”
Landon: “It shames me to admit it, but I’m a convicted felon. When I was 19 years old,
I was in a bar fight and knocked the bouncer out. I’m not proud of my action.
I feel that I’ve done my time and that is all behind me now.”
Ava Alexander was appalled at Landon Lincoln’s felony conviction. Because of that she decided
not to hire him, but what Ava Alexander did not know at the time was California had recently
passed a law making it illegal to discriminate against a former felon in the workplace.
Nevertheless, based on the earlier additions Alexander, Bennett & Assoc., Inc. was able to land
two new audit clients in 2018: the aforementioned Dylan, Inc., and “Joseph & Joseph.” One of
the key reasons Alexander, Bennett & Assoc., Inc. was able to land Joseph & Joseph as an audit
client was the close relationship between Joseph & Joseph’s CEO and Henry Hudson. You see,
Henry Hudson dated Joseph & Joseph’s CEO, Mia Madison, in college. They eventually broke
up, but Henry Hudson and Mia Madison stayed in regular contact. Henry Hudson, knowing Mia
Madison so well, told Braxton Bennett that she loved football. Seizing on the opportunity and
knowing that Joseph & Joseph was in the market for a new accounting firm, Braxton Bennett
bought and sent Mia Madison season box seat tickets for next year’s Los Angeles Charges home
games. In the envelope to Mia Madison, Braxton Bennett wrote the following note: “Hope I can
go with you sometime! Love, your friends at Alexander, Bennett & Associates.” It worked like a
charm, and the rest was history. Ava Alexander, Cara Connor, Ethan Easton, and Henry Hudson
all began working on Joseph & Joseph’s audits from then on.
The timing of Dylan, Inc. becoming a client was also superb. Ava Alexander, Braxton Bennett,
Cara Connor, Fiona Freya, and Ivy Iris would all eventually work on Dylan, Inc.’s audit team, but
during Cara Connor’s interview two (2) years earlier, Cara Connor informed Braxton Bennett of
something very interesting. During that 2016 interview, Cara Connor told Braxton Bennett that
Dylan, Inc. was just about to launch a drug that would cure Dengue Fever once and for all. Nobody
else except Cara Connor and Owen Oliver knew the news at the time. Excitedly, Braxton Bennett
told Ava Alexander about the new drug and its potential. Ava Alexander promptly told her onagain-off-again romantic partner Neil Nova about the new drug and its potential. Thus, in 2016,
Neil Nova bought $1,000 worth of Dylan, Inc. to add to his very modest retirement savings.
As Alexander, Bennett & Assoc., Inc. prospered, Ethan Easton and Cara Connor were eventually
made partners in 2019, but Fiona Freya and Grant Griffin never rose above the level of manager.
But Grant Griffin was not left out in the cold. Grant Griffin was introduced to Mia Madison by
Henry Hudson, the two fell in love, and Grant Griffin married Mia Madison (now Mia Griffin) in
a small ceremony on a private Caribbean island in 2020. Inspired by their nuptials, Ava Alexander
and Neil Nova tied the knot themselves on January 1, 2021.
QUESTIONS:
1)
Identify all ethical issues faced by the following individuals, discuss the applicable
rule(s) that govern their behavior for each issue, and analyze if they acted ethically
or not:


Ava Alexander [25 Points]
Braxton Bennett [12 Points]



2)
Cara Connor [14 Points]
Ethan Easton [18 Points]
Neil Nova [6 Points]
Does Alexander, Bennett & Assoc., Inc. have the independence to audit either
Dylan, Inc. or Joseph & Joseph in 2021? Explain why or why not, making
suggestions for any precautionary measures Alexander, Bennett & Assoc., Inc.
might take if they continue auditing them in 2022. [25 Points]
Ethics in Accounting
ACCTG – 530
FINAL
Spring 2022
INSTRUCTIONS:
There are only two (2) short answer/essay questions to follow, but each has subcomponents. Each question is assigned a certain number of points, for a total of 100 points.
Answers will be scored on (1) correctly identifying the issue(s), (2) referencing appropriate
rules or authority when called for, and (3) most importantly, thorough and complete
analysis. When possible, you should make assumptions to keep your analysis going. If
there are differences in the rules under the AICPA Code, California rules, or other laws,
you should address any similarities or distinguish any differences.
The exam is open note, open book, etc. Avoid the temptation to copy-and-paste material
– answers will be scored primarily on your thorough and complete analysis.
Please email your answer as an attached Word or PDF document without your name.
Include your RedID on the attachment so they can be printed and graded anonymously
with all other exams.
Exams must be turned in before 5:00 p.m. on Tuesday, May 10, 2022.
Good luck!
FACTS:
Once upon a time, in 2010, Ava Alexander decided to form a mid-sized accounting firm located
in San Diego right after she graduated college to perform only tax services for her clients. Ava
Alexander was initially very successful because her marketing tag line was: “I’ve never lost an
IRS audit.” However, Ava Alexander never actually had, nor would she ever, represent a client in
an audit before the IRS or any other tax agency. She simply prepared their income tax returns. In
fact, Ava Alexander never herself took the CPA exam despite otherwise having the educational
experience.
From 2010 until 2012, Ava Alexander operated the firm under the name of “Alexander &
Associates Accounting Firm, Inc.” and brought on her first employee, Braxton Bennett, on July 1,
2012. At the time Braxton Bennett was just an accounting student but showed such potential that
Ava Alexander gave him a fifty percent (50%) equity interest in the firm on July 1, 2013, and
promptly changed the name of the firm to “Alexander, Bennett & Assoc., Inc.” Braxton Bennett
graduated and passed his CPA exam in 2015 and has worked with Ava Alexander at Alexander,
Bennett & Assoc., Inc. ever since.
Braxton Bennett would not be Alexander, Bennett & Assoc., Inc.’s only employee. As the firm
grew additional CPA’s and staff were added. First, Ava Alexander wanted to expand the firm’s
services to include audit and other attest engagements, so in 2016 she hired Cara Connor.
Cara Connor had spent the last five-years as a California licensed CPA and the controller of a
large, publicly traded company, “Dylan, Inc.” Dylan, Inc. manufactures pharmaceutical products
to treat often neglected tropical diseases like Dengue Fever, leprosy, and rabies. Dylan, Inc. was
run by an iron-fisted CEO named Owen Oliver. For example, in 2015 Owen Oliver and Cara
Connor flew from Dylan, Inc.’s New York headquarters to Panama for a meeting with that
country’s Minister of Public Health. At the meeting between Owen Oliver, Cara Connor, and the
Panamanian Minister of Public Health, Owen Oliver got upset and shouted in the Minister’s face:
“If you don’t buy our company’s drugs you just may not live to see another day!” Quick to act,
Cara Connor tried to smooth the relationship and told the Minster: “Look, he’s drunk. There must
be something we can do to convince Panama to buy our company’s life-saving drugs…? What if
we sponsor your World Cup soccer team? I hear you’re a big fan…” Despite saving the
procurement contract Cara Connor was left uneasy by the ordeal and hence her decision to leave
Dylan, Inc. for the greener pastures of Alexander, Bennett & Assoc., Inc. the next year.
Ava Alexander also added Ethan Easton, Fiona Freya, and Grant Griffin (all California licensed
CPA’s), and Henry Hudson and Ivy Iris (administrative staff personnel who had no prior
accounting experience) in 2017. Unknown to Ava Alexander, Ethan Easton moonlights as a tax
return preparer. Ethan Easton’s main area of expertise is preparing tax returns for strippers.
Because of the sensitive nature of their work, i.e., the large amounts of potentially unreported cash
income, Ethan Easton charges each stripper $15,000, per year, to prepare their tax returns. Ethan
Easton is further in the habit of making up dependents and arbitrarily changing his stripper/client’s
income to maximize their entitlement to certain tax incentives like the Earned Income Tax Credit.
But Ethan Easton is savvier than that. He frequently referred his stripper/clients to Dr. Paul Paddy
for all plastic surgery needs. In exchange for referring each stripper/client, Dr. Paul Paddy sends
Ethan Easton a bottle of wine and each year Dr. Paul Paddy takes Ethan Easton on his private
yacht for a weekend getaway trip to Catalina Island.
A seventh and eighth CPA, Kevin King and Landon Lincoln, respectively, also interviewed for
jobs with Alexander, Bennett & Assoc., Inc. in 2017. During the Kevin King’s interview, he and
Ava Alexander had the following exchange:
Ava:
Kevin:
Ava:
Kevin:
“What would make you a valuable member of my team?”
“Well…I’m very hard working, I have 5 years of audit experience, and I bring
a level of diversity that I think your firm is missing.”
“What!?!?!? What could my amazing firm be missing?”
“I’m gay, and it appears that nobody else on your staff is. That could be an
advantage.”
Annoyed – not at Kevin King being gay but at his statement that her firm was missing anything at
all – Ava Alexander decided not to hire him. The very next day she interviewed Landon Lincoln
during which the following exchange occurred:
Ava:
“What would make you a valuable member of my team?”
Landon: “I’m very hard working, I have 6 years of audit experience, and I love your
shoes.”
Ava:
“Well that’s so kind of you! We at Alexander & Bennett pride ourselves at
being a tight family. Is there anything about you that I should know before we
make a decision?”
Landon: “It shames me to admit it, but I’m a convicted felon. When I was 19 years old,
I was in a bar fight and knocked the bouncer out. I’m not proud of my action.
I feel that I’ve done my time and that is all behind me now.”
Ava Alexander was appalled at Landon Lincoln’s felony conviction. Because of that she decided
not to hire him, but what Ava Alexander did not know at the time was California had recently
passed a law making it illegal to discriminate against a former felon in the workplace.
Nevertheless, based on the earlier additions Alexander, Bennett & Assoc., Inc. was able to land
two new audit clients in 2018: the aforementioned Dylan, Inc., and “Joseph & Joseph.” One of
the key reasons Alexander, Bennett & Assoc., Inc. was able to land Joseph & Joseph as an audit
client was the close relationship between Joseph & Joseph’s CEO and Henry Hudson. You see,
Henry Hudson dated Joseph & Joseph’s CEO, Mia Madison, in college. They eventually broke
up, but Henry Hudson and Mia Madison stayed in regular contact. Henry Hudson, knowing Mia
Madison so well, told Braxton Bennett that she loved football. Seizing on the opportunity and
knowing that Joseph & Joseph was in the market for a new accounting firm, Braxton Bennett
bought and sent Mia Madison season box seat tickets for next year’s Los Angeles Charges home
games. In the envelope to Mia Madison, Braxton Bennett wrote the following note: “Hope I can
go with you sometime! Love, your friends at Alexander, Bennett & Associates.” It worked like a
charm, and the rest was history. Ava Alexander, Cara Connor, Ethan Easton, and Henry Hudson
all began working on Joseph & Joseph’s audits from then on.
The timing of Dylan, Inc. becoming a client was also superb. Ava Alexander, Braxton Bennett,
Cara Connor, Fiona Freya, and Ivy Iris would all eventually work on Dylan, Inc.’s audit team, but
during Cara Connor’s interview two (2) years earlier, Cara Connor informed Braxton Bennett of
something very interesting. During that 2016 interview, Cara Connor told Braxton Bennett that
Dylan, Inc. was just about to launch a drug that would cure Dengue Fever once and for all. Nobody
else except Cara Connor and Owen Oliver knew the news at the time. Excitedly, Braxton Bennett
told Ava Alexander about the new drug and its potential. Ava Alexander promptly told her onagain-off-again romantic partner Neil Nova about the new drug and its potential. Thus, in 2016,
Neil Nova bought $1,000 worth of Dylan, Inc. to add to his very modest retirement savings.
As Alexander, Bennett & Assoc., Inc. prospered, Ethan Easton and Cara Connor were eventually
made partners in 2019, but Fiona Freya and Grant Griffin never rose above the level of manager.
But Grant Griffin was not left out in the cold. Grant Griffin was introduced to Mia Madison by
Henry Hudson, the two fell in love, and Grant Griffin married Mia Madison (now Mia Griffin) in
a small ceremony on a private Caribbean island in 2020. Inspired by their nuptials, Ava Alexander
and Neil Nova tied the knot themselves on January 1, 2021.
QUESTIONS:
1)
Identify all ethical issues faced by the following individuals, discuss the applicable
rule(s) that govern their behavior for each issue, and analyze if they acted ethically
or not:


Ava Alexander [25 Points]
Braxton Bennett [12 Points]



2)
Cara Connor [14 Points]
Ethan Easton [18 Points]
Neil Nova [6 Points]
Does Alexander, Bennett & Assoc., Inc. have the independence to audit either
Dylan, Inc. or Joseph & Joseph in 2021? Explain why or why not, making
suggestions for any precautionary measures Alexander, Bennett & Assoc., Inc.
might take if they continue auditing them in 2022. [25 Points]

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