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Question 1: Obtain a copy of the AICPA Code of Professional Conduct from the AICPA website.
According to the
Code of Professional Conduct, how is the ‘‘public interest’’ defined? (Be sure to include a reference to the location
in the Code where you found your answer.) Based on the Code of Professional Conduct and the IFAC’s Policy
Position, who is the ‘‘public’’? Of those included in the public, to whom do accountants owe their primary duty? Do
you believe this definition is adequate? What do you believe is missing from the definition that could improve its
clarity?
The AICPA Code of Professional Conduct defines the “public interest” as the collective
well-being of the community of people and institutions that the profession serves. The
profession’s “public” includes clients, credit grantors, governments, employees, investors, the
business and financial community, and others who rely on the objectivity and integrity of
members to maintain the orderly functioning of commerce. Although the public consists of
different groups, members owe their primary duty to users of financial statements. More
specifically, the auditor’s opinion reduces information risk and facilitates the flow of capital into
a business. Although the auditor is compensated by the client, the opinion serves a greater
purpose to potential investors and members within the financial community. Members will often
times be subjected to conflicting pressures between each group within the public. However, the
Code states that when members fulfill their responsibility to the public, clients and employee’s
interests are best served. The definition of the public is adequate, however its clarity can be
improved. Given that members owe their primary duty to users of financial statements, including
this information may increase clarity. In addition, the AICPA could elaborate on why the public
trust is so vital to the profession as a whole. Simply, without honoring the public trust, the entire
financial system would collapse.
Question 3: Describe an auditor’s role in society. Considering the auditor’s role in society, rank order (from
most to least important) the relative importance of (i) the auditor’s duty to the public, (ii) the auditor’s duty to
preserve client confidentiality, and (iii) the auditor’s right to minimize his or her own risk of litigation. What
criteria or considerations did you use to rank the components? For each ranking, carefully defend your reasoning.
The auditor’s opinion provides reasonable assurance that financial statements are free of
material misstatements which reduces information risk. The reduction of information risk
provides value to companies and users by reducing the cost of capital and facilitating its flow.
Auditors are specialists in evaluating transactions, and offer an unbiased independent opinion of
the company. The auditor’s duty to the public is most important for the profession to carry out its
role in society. Although the auditor is compensated by the client (or audit board), the auditor has
a duty to honor the public trust. Simply, auditor’s sell integrity and without public confidence the
opinion loses value. More importantly, if auditor’s fail the duty to the public, the entire financial
system would collapse. For example, after the Madoff Scandal, the investor loss confidence in
the profession. As a result, financial markets collapsed.
The auditor’s duty to preserve client confidentiality is important, however it is not as
important as the duty to honor the public trust. Simply, client confidentiality is important because
it is necessary to uphold the public trust. Without client confidentiality, the auditor would fail its
duty to the public. In extreme cases it maybe in the public interest for auditors to break client
confidentiality. For example, if a major fraud is detected. Information gathered is property of the
client, and the auditor should act with integrity. Simply without client confidentiality, no rational
client would agree to an audit.
The auditor’s right to minimize his or her own risk of litigation is not necessarily
essential for the auditor’s role in society. Although it is important for the auditor to reduce his
litigation risk, failing to do so will not have the devastating effect as the other the duties. Client
confidentiality and honoring the public trust are essential for every engagement. However, the
minimization of litigation risk may not be necessary for every engagement.

Question 5: As the engagement partner for Fine Furniture Manufacturing, what action(s) should you take related to
the impending going concern opinion to soon be issued for your client? Would you inform the Paple Lumber Supply
and/or Front Porch Furniture engagement team(s) of the impending going concern opinion to soon be issued for
your client, or would you take an alternative action? To answer this question, use the following ethical dilemma
framework:
The case draws on an ethical dilemma regarding the balance between the auditor’s duty
to the public, client confidentiality, and auditor liability. To begin, Cook and Thomas LLC could
experience litigation claims due to violation of confidentiality. If the auditor shares the going
concern with the teams for Paple Lumber Supply and Front Porch Furniture, Fine Furniture
would sue. On the other hand, if Fine Furniture Manufacturing were to go bankrupt, and Paple
Lumber Supply and Front Porch Furniture are unable to locate alternative customers or whole
sale suppliers, then Cook and Thomas would face litigation if either of the companies were to
file for bankruptcy after receiving an unmodified opinion. Essentially, notifying the other
engagement teams of the going concern violates confidentiality yet it honors the public trust.
Lastly, Cook and Thomas may face litigation from Mutual Trust Bank, a foreseen user, that
indicated they would rely on the Front Porch Furniture financial statements. Ultimately, Front
Porch Furniture, Paple Lumber Supply, Fine Furniture Manufacturing, Cook and Thomas, and all
of the users of the financial statements may be affected by the outcome of the dilemma.
Alex Trifold, the engagement partner, has four possible alternatives: 1) discuss the going
concern with other engagement teams, 2) do not discuss the going concern, 3) emphasis of
matter, and 4) disclaim and reject the engagement. As stated previously, discussing the going
concern with the other engagement teams violates client confidentiality. In this case, litigation
will instantly be pursued by Fine Furniture Manufacturing- who explicitly stated they do not
agree to provide consent to disclose the information to either Paple Lumber or Front Porch
Furniture. Unlike alternative #2, the chance of litigation is not contingent on the future
performance of the interdependent clients. More clearly, the Code of Conduct explicitly states
that a CPA is not permitted to disclose confidential client information to others in the firm who
are not connected to the engagement. On the other hand, the litigation risk of alternative #2 is
contingent on the fact that Fine Furniture Manufacturing will ultimately fail, and Paple Lumber
Supply and Front Porch Furniture are unable to locate alternative customers/suppliers. As a
result, discussing the going concern with the other teams for the public good results in greater
risk. Litigation from Paple Lumber and Front Porch are simply hypothetical. The recommended
alternative (alternative #3) would be the use of an emphasis of matter paragraph and not issue a
going concern for Fine Furniture Manufacturing. Trifold ought to disclose the two unforeseen
factors that drastically increased the cost of production in an emphasis of matter paragraph; the
company experienced uninsured damages to the company’s manufacturing equipment and failed
to negotiate a union contract. According to the case, the first three quarters of the current year
have been consistent with previous years. As a result, the company may be able to continue
operation especially if Front Porch (its largest buyer) plans for a massive expansion. The
alternative would mitigate the possibility of a litigation for client confidentiality, help to protect
the firm from the interdependent clients, and provide assurance to users as to the status of the
company. Lastly alternative #4, would result in a loss for both Cook and Thomas (failure to
collect a fee) and Fine Furniture Manufacturing (not receiving an opinion).

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Question 1: Obtain a copy of the AICPA Code of Professional Conduct from the AICPA website.

financial system would collapse.

the profession. As a result, financial markets collapsed.

The auditor’s duty to preserve client confidentiality is important, however it is not as

client would agree to an audit.

minimization of litigation risk may not be necessary for every engagement.

collect a fee) and Fine Furniture Manufacturing (not receiving an opinion).

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