Deck 4: Professional Judgment and Ethics

Question 1

Identify and describe each of the three parts to the Code of Professional Conduct. Also discuss which parts are officially enforceable and which are not.

Answer 1

The three parts to the Code are:
•Principles: These establish ideal standards of ethical conduct stated in philosophical terms.They are not officially enforceable.
•Rules of conduct: These are the minimum standards of ethical conduct stated as specific rules.They are officially enforceable.
•Interpretations: Interpretations of rules are intended to clarify the rules of conduct.They are not officially enforceable, but a practitioner must justify any departure.

Question 2

Ethical dilemmas occur when

A) you know what you want to do but the rules say otherwise.
B) businesses disregard the laws and engage in illegal behaviour.
C) a person chooses to act in his/her own interest.
D) a choice must be taken about appropriate behaviour.

Answer 2

D

Question 3

Frank has discovered that his employer is part of a group of banks that is manipulating interest rates. He would like to stop this practice at his employer but is not sure how best to talk to his boss. He has heard of the GVV (Giving Voice to Values) approach and thinks he may be able to use it successfully because his company has recently implemented new initiatives to empower employees to speak of improvements to business practices. After considering his personal and professional purpose and choices, what should Frank do next?

A) identify the stakeholders, what is at stake for them, and how to connect with them
B) identify the values underpinning the different positions in the conflict and the possibilities for action
C) practice what he is going to say, with help from a mentor or coach
D) develop a powerful response that he can use with his boss, using external research or resources

Answer 3

A

Question 4

What are the qualities of professional skepticism?

Question 5

Frank has discovered that his employer is part of a group of banks that is manipulating interest rates. He would like to stop this practice at his employer but is not sure how best to talk to his boss. He has heard of the GVV (Giving Voice to Values) approach and thinks he may be able to use it successfully because his company has recently implemented new initiatives to empower employees to speak of improvements to business practices. After identifying and clarifying the ethical issue, what should Frank do next?

A) identify the stakeholders, what is at stake for them, and how to connect with them
B) identify the values underpinning the different positions in the conflict and the possibilities for action
C) consider his personal and professional purpose and choices in this situation
D) develop and practice a powerful response that he can use with his boss

Question 6

It is not practical for users to evaluate the quality of the performance of most professional services because of their

A) complexity.
B) legal standing.
C) veracity.
D) salaries and working conditions.

Question 7

What in auditing is the application of relevant knowledge and experience, within the context provided by auditing and accounting standards and Rules of Professional Conduct, in reaching decisions where a choice must be made between alternative possible courses of action.

A) professional judgment
B) professional skepticism
C) professional behaviour
D) professional standard

Question 8

Frank has discovered that his employer is part of a group of banks that is manipulating interest rates. He would like to stop this practice at his employer but is not sure how best to talk to his boss. He has heard of the GVV (Giving Voice to Values) approach and thinks he may be able to use it successfully because his company has recently implemented new initiatives to empower employees to speak of improvements to business practices. The first step of the GVV approach includes

A) identifying the stakeholders, what is at stake for them, and how to connect with them.
B) identifying the values underpinning the different positions in the conflict and the possibilities for action.
C) considering Frank's personal and professional purpose and choices in this situation.
D) development and practice of a powerful response that Frank can use with his boss.

Question 9

Describe an ethical dilemma that an auditor or an accountant might face in his or her business career. Then illustrate how the auditor or accountant might use the five-step approach presented in Chapter 4 to resolve the dilemma. Be specific.

Question 10

Frank has discovered that his employer is part of a group of banks that is manipulating interest rates. He would like to stop this practice at his employer but is not sure how best to talk to his boss. He has heard of the GVV (Giving Voice to Values) approach and thinks he may be able to use it successfully because his company has recently implemented new initiatives to empower employees to speak of improvements to business practices. Frank has identified who is affected, what is at stake for them, and how to connect with them. What is his next step, using the GVV analysis framework?

A) list the values underpinning the different positions in the conflict
B) consider his personal and professional purpose and choice in this situation
C) practice what he is going to say with help from a mentor or coach
D) craft a useful, powerful response that he could use, taking into account multiple options

Question 11

The requirement for an attitude of skepticism means that the auditor should

A) not be blind to evidence that suggests the documents, books, or records have been altered or are incorrect.
B) plan and conduct the audit with an attitude of distrust in management.
C) perform additional tests of controls to increase the probability of discovering fraud or errors.
D) not consider management's explanation as evidence on any subject.

Question 12

A public accountant would be facing an ethical dilemma when deciding whether or not to

A) overlook a material overstatement of revenues to maintain a good client relationship.
B) overlook a non-material error in the financial statements.
C) accept an invitation from the client to go golfing in order to maintain a good client relationship.
D) participate in a charitable activity organized by the client.

Question 13

List the components of the auditor's professional judgment framework.

Question 14

Professional skepticism during the financial statement audit requires an appropriate state of mind: being impartial and objective and continuing to be throughout the whole audit engagement. Which of the following illustrates an appropriate state of mind?

A) not having any ownership in the client's shares or being a debt-holder
B) carefully assessing documents and not being the company's advocate
C) matching documents to make sure that they are accurate and fair
D) being aware that there could be material misstatements in the financial statements

Question 15

What are the common judgement traps and how can they be avoided?

Question 16

Society has attached a special meaning to the term professional. A professional is

A) someone who has passed a qualifying exam to enter the job market.
B) any person who receives pay for the services performed.
C) a person who is expected to conduct himself or herself at a higher level than the requirements of society's laws or regulations.
D) someone who has both an education in the trade and on-the-job experience received under an experienced supervisor.

Question 17

In applying professional judgment, the auditor must be able to justify a decision on the basis that it

A) is carried out with truthfulness and forthrightness.
B) meets the underlying principles of only GAAS.
C) considers the impact on management's performance.
D) helps the company improve its profitability.

Question 18

Ethical behaviour is considered to be a cornerstone for trust in everyday life as well as in business practices. Ethics are

A) beliefs that we have about our own behaviour.
B) a set of moral principles or values.
C) rules in society that help us to do the right thing.
D) laws that govern how businesses should behave.

Question 19

Frank has discovered that his employer is part of a group of banks that is manipulating interest rates. He would like to stop this practice at his employer but is not sure how best to talk to his boss. He has heard of the GVV (Giving Voice to Values) approach and thinks he may be able to use it successfully because his company has recently implemented new initiatives to empower employees to speak of improvements to business practices. Frank has crafted a useful, powerful response that he could use, taking into account multiple options. He has conducted research to make him more informed on the issue, and has consulted a friend who is expert in this area. What is the next thing he should do before talking to his boss?

A) review the values underpinning the different positions in the value conflict
B) further develop and practice his response (scripting) and get help (coaching)
C) review the different possibilities for action to make sure that he has considered enough
D) check his stakeholder analysis to make sure that it is thorough and complete

Question 20

Formal frameworks have been developed to help people resolve ethical dilemmas. After obtaining the relevant facts and identifying the ethical issues from the facts, what is the next step in the five-step ethical framework described in the chapter?

A) Decide on the appropriate action to be taken in resolving the ethical dilemma.
B) Identify the likely consequences of actions that will be taken.
C) Identify who is affected and how each is affected.
D) Identify the alternatives available to the person who must resolve the dilemma.

Question 21

One difference between auditors and other professionals is that most professionals

A) need not be concerned about maintaining independence.
B) don't have requirements for continuing education beyond university.
C) don't have to pass a rigorous examination.
D) aren't expected to act in the public interest.

Question 22

When the users of financial statements have confidence in the independence of the public accountant, it is referred to as independence in

A) fact.
B) appearance.
C) conduct.
D) total.

Question 23

Which of the following situations best describes an advocacy threat? PA has been hired to

A) consult with the corporate controller and the bank manager about the conditions for financing a loan.
B) manage the accounting department for three weeks while the corporate controller is on vacation.
C) complete the personal tax returns of all executive management.
D) prepare the year end journal entries for a subsidiary company.

Question 24

In a code of conduct, the advantage of general statements of ideal conduct (as opposed to specific rules of behaviour) is

A) the emphasis on positive activities that encourage a high level of performance.
B) the ability to enforce the ideals.
C) the enforceability of minimum behaviour and performance standards.
D) the tendency to define the rules as maximum rather than minimum standards.

Question 25

Discuss the ways the accounting profession and society encourage public accountants to conduct themselves in a professional manner (i.e., the factors that influence the ethical conduct of audit practitioners).

Question 26

The disadvantage of general statements in codes of professional conduct is

A) the emphasis on positive activities.
B) that they identify ideal conduct.
C) the difficulty of enforcing general ideals without minimum standards of behaviour.
D) that there are too many to remember.

Question 27

When public accountants are able to maintain an independent attitude in fulfilling their responsibility, it is referred to as independence in

A) fact.
B) appearance.
C) conduct.
D) total.

Question 28

According to the profession's ethical standards, an auditor would be considered independent in which of the following instances? The

A) auditor's chequing account, which is fully insured by CDIC, is held at a client financial institution.
B) client comprises 75% of the auditor's fees.
C) auditor does not have enough employees to meet the client's reporting deadline.
D) client owes the auditor fees for two consecutive annual audits.

Question 29

Which portions of the code of professional conduct are enforceable?

A) principles and rules
B) the rules of conduct
C) interpretations
D) rules and interpretations

Question 30

How do quality control processes for the financial statement audit process incorporate consideration of legislation that affects the client?

A) they require second partner review of all working partners that relate to legislative matters
B) they provide auditors with copies of legislation that affects their client
C) they require the training of all auditors in legislation details that could affect all clients
D) they include in audit checklists questions that address relevant new legislation

Question 31

A code of professional conduct typically includes principles, rules of conduct, and interpretations or examples. What is the purpose of the principles?

A) to state what a practitioner must do for each audit engagement conducted
B) to provide discussions of the rules of conduct and how they relate to practical situations
C) to provide minimum standards of ethical conduct stated specifically
D) to provide ideal standards of ethical conduct stated in philosophical terms

Question 32

Which of the following situations would be an example a of self-review threat? Prior to commencing the audit engagement, PA has completed

A) personal and corporate tax returns.
B) audit of a company where the client owns a minority interest.
C) purchase price allocation calculation for a company that the client purchased during the year.
D) audit of the non-for profit organization of the client.

Question 33

"Independence" in auditing means

A) remaining aloof from the client.
B) not being financially dependent on the client.
C) impartiality in performing professional services.
D) being an advocate for the client.

Question 34

Independence is assessed in the eyes of external users and regulators. Which of the following is a tool that helps the auditor identify whether the auditor is independent for a particular audit engagement?

A) completion of independence forms at time of employment
B) an independence threat analysis
C) an audit risk model assessment for each engagement
D) professional skepticism when assessing control risks

Question 35

As a member of a professional accounting association, when considering the applicability of the rules of professional conduct, a PA would be responsible for compliance by

A) themselves only.
B) their partners in the practice and themselves.
C) their employees.
D) themselves, their employees, and partners.

Question 36

Which of the following situations would be an example of a self-interest threat that would prevent a PA from auditing the client?

A) The PA's uncle owns the business that the PA is auditing.
B) For the last two years, the client could not pay their fees, so the PA created a loan agreement covering the fees, with the client paying 10% interest on the fees.
C) The PA has a small bank loan at normal business interest rates with the bank that his firm is auditing.
D) The PA has purchased a used car from one of the employees of the client.

Question 37

Generally, all of the rules of professional conduct for CPAs apply to

A) students in public practice.
B) students and members.
C) all members.
D) members in public practice.

Question 38

When should a PA assess the five threats to independence with respect to an audit engagement?

A) when deciding to accept a client or whether to continue an existing engagement
B) after signing the engagement letter and before commencing field work
C) after the completion of this year's audit, before starting the next engagement
D) after a discussion with the Board of Directors

Question 39

The underlying reason for a high level of professional conduct, such as exemplified in a code of conduct, for any profession is

A) the need for public confidence in the quality of service of the profession.
B) that it provides a safeguard to keep unscrupulous people out.
C) that it is required by federal legislation.
D) that it allows licensing agencies to have a yardstick to measure deficient performance.

Question 40

Why does a self-review threat pose a problem when conducting an audit engagement?

A) The audit can be conducted more efficiently.
B) You are auditing your own work, and may not detect inadequacies.
C) The audit is more expensive, as you have to provide clear documentation.
D) The auditor may not have the expertise to complete the special work.

Question 41

Where an independence threat occurs, it may be that only the person affected needs to be removed from the engagement. In this case, other members of the firm can complete the engagement. An example of a situation where only the student or member would be excluded from the engagement is where PA

A) has a significant financial interest in the client, such that influence could be exerted.
B) used to be a controller at the client, but now works for the PA firm.
C) owns ten percent of the shares of the client.
D) is a board member of the client with signing authority for cheques.

Question 42

A familiarity threat at an audit engagement occurs when

A) the member has a financial interest in the client.
B) it is difficult to behave with professional skepticism.
C) PA promotes the client's position to third parties.
D) the member discloses financial information about the client.

Question 43

At a small practice where the bulk of the work is accounting, bookkeeping, and review engagements, what is an important procedure that should be followed by the PA to help ensure independence?

A) Management should be trained in accounting principles so that they can adequately assess the PAs work.
B) All transactions should be prepared and processed by client personnel.
C) Transactions and journal entries should be discussed with and approved by the client.
D) The accountant should avoid doing bookkeeping for review engagements, and restrict this to compilation engagements only.

Question 44

Financial statement users cannot be expected to evaluate audit performance because they will not have the time or the competence to do so. In such a situation, how is public confidence in the quality of professional services enhanced? When there are

A) only business majors hired to work as auditing students with public accounting firms.
B) adequate controls at the public accounting firm to limit the amount of overtime worked.
C) high standards of performance and conduct on the part of all practitioners.
D) strict rules about the type of work that employees should complete on a daily basis.

Question 45

Which one of the following situations is a violation of the professional rules of conduct? PA

A) looked the other way when he noticed that one of his firm's accounting staff accepted money from client management.
B) resigned so that he could accept a position on the Board of Directors at a major client.
C) prepared personal and corporate tax returns for a client and all of its executive officers.
D) placed an advertisement in the local paper indicating that she conducted audit engagements for five major insurance companies.

Question 46

Which of the following situations best describes a familiarity threat?

A) design and implementation of a new payroll system
B) preparation and entry of bookkeeping transactions
C) completion of corporate transactions for subsidiary companies
D) PA has been working with this client for ten years, first as a manager, now as a partner

Question 47

Some independence rules apply to all assurance engagements, while others apply only to a listed entity. For the purposes of assessing the independence rules, a listed entity is defined as

A) an organization with share capital exceeding $10 million that has public accountability.
B) an entity whose debt or shares is listed on a stock exchange, with market capitalization and total assets greater than $10 million.
C) any organization that has shares or debt listed on a stock exchange.
D) an organization that has shares or debt listed on a stock exchange, and that has redeemed shares.

Question 48

What should a PA do if approached by a client where he and his firm lack or do not have access to the technical knowledge required to complete the audit?

A) subcontract the audit to another firm
B) indicate that they can do a review engagement, not an audit
C) decline the new audit engagement
D) conduct the engagement, but prepare a qualified audit report

Question 49

An intimidation threat occurs when

A) it is difficult to believe the actions of management because there is a suspicion of irregular activity with respect to the recording of transaction activity.
B) the auditor suspects that fraud has occurred at the middle management level of the organization.
C) the auditor has been working on a client engagement for many years and has trouble believing that management would deceive the auditors.
D) a client threatens the firm or its staff with respect to the content of the financial statements or with respect to the conduct of the audit.

Question 50

If a PA firm provided corporate finance services to a company during the year, which of the following engagements could the PA firm accept to provide to the same company?

A) non-assurance services
B) audit of listed entity
C) audit of non-listed entity
D) other assurance engagement

Question 51

Which one of the following forms of advertisement would violate solicitation rules? PA

A) placed an advertisement in a newspaper indicating the opening of a new office.
B) conducted a cold-calling campaign where companies were asked if they would like to change PA firms.
C) placed a media advertisement listing the different types of expertise available at the firm's major office locations.
D) conducted a survey asking companies about the types of services that are provided by their accounting firms.

Question 52

The confidential relationship will be violated if, without the client's permission, the public accountant provides working papers about a client to

A) a court of law which subpoenas them.
B) the relevant provincial institute as part of a practice inspection.
C) another public accounting firm which has just purchased the public accountant's entire practice.
D) an investigative or disciplinary body of the relevant provincial institute which is conducting a review of the public accountant's practice.

Question 53

In which of the following circumstances would a public accountant be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?

A) The public accountant is issued a subpoena that orders the public accountant to present confidential information.
B) A major shareholder of a client company seeks accounting information from the public accountant after management declined to disclose the requested information.
C) Confidential client information is made available as part of a practice inspection of the public accountant's practice.
D) An inquiry by a disciplinary body of a provincial institute requests confidential client information.

Question 54

Which of the following is the best example of an intimidation threat? Management

A) has decided to sue you because the audit fee was twice as high as they expected.
B) has changed auditors of all of its subsidiary companies as they can get the audit done for a lower cost.
C) threatens to change auditors if you do not let them overstate accounts receivable by $100 000 (the bad debt allowance is too low).
D) threatens to resign from the company if the board of directors does not give them a 15% raise.

Question 55

The provincial institutes Rules of Professional Conduct state, in part, that a public accountant should maintain integrity and due care. Integrity in the Rules refers to a public accountant's

A) ability to maintain an impartial attitude on all matters that come under the public accountant's review.
B) ability to distinguish independently between accounting practices that are acceptable and those that are not.
C) ability to be unyielding in all matters dealing with auditing procedures.
D) reputation for honesty and fair dealing.

Question 56

For which of the following engagements is a contingent fee permitted?

A) an audit engagement of a large listed corporation
B) a tax consulting assignment assessing the excise tax payment processes
C) a review engagement of a small manufacturing corporation
D) an assurance engagement of leasehold payments for a rental agreement

Question 57

For listed clients, the audit committee should approve both the appointment of the auditor and

A) all services that the PA firm provides to the client.
B) an engagement that might affect the appearance of independence, such as design of control systems.
C) any services that are provided for senior management.
D) the material that is included in the management letter by the PA firm.

Question 58

How is use of an applicable accounting framework enforced via legislation?

A) The Canada Business Corporations Act and many provincial incorporating acts require that financial statements be prepared in accordance with GAAS as set out in the CPA Canada Handbook.
B) PAs who do not prepare financial statements in accordance with such frameworks are expelled from their professional association.
C) Tax authorities may sue corporations who do not prepare their financial statements in accordance with such frameworks.
D) Financial executives may be sued if the financial statements prepared by their company are not in conformance with such frameworks.

Question 59

The rules of accounting bodies in Canada require their members to behave in the best interest of the profession and the public. Identify the situation where the accountant is acting in the best interest of the profession. An accountant

A) reports a fellow accountant after noticing that the accountant helped a client with tax evasion.
B) openly criticizes a fellow accountant's competencies after having lost a bid for a new client.
C) brags about his competence and professional title, and encourages clients to invest in a new venture he is starting.
D) refuses to cooperate with the new auditor after having lost a client.

Question 60

To ensure that employees remain independent, an audit firm should

A) ask employees to sign a form confirming that they do not have an investment in a company that they are auditing.
B) prohibit an employee from the Toronto office to have an investment in a company audited by the Hong Kong branch of the PA firm.
C) include a section in the code of conduct indicating that the employees should not invite their client to dinner.
D) refuse an audit mandate where the cousin of a staff member works in the marketing department.

Question 61

Each of the following situations involves a possible violation of the provincial institutes Rules of Professional Conduct. For each situation, (1) decide whether or not the Rules have been violated, and (2) briefly explain how the situation violates (or does not violate) the Rules.

A) Johnny Line has a successful dentistry practice in Calgary. Johnny has recommended one of his patients to Leslie King, public accountant. To show gratitude for the referral, Leslie has agreed to pay Johnny 5% of the fee for audit services rendered by Leslie to Johnny's patient. Leslie discloses the payment agreement to her new client.
Violation? Yes No

Question 62

PA has been asked to accept the audit engagement of BarneyBlues Corporation. PA sent a letter to the predecessor auditor asking whether there was any reason why he should not accept the engagement. Assuming that the prior year audit went smoothly, what would be an appropriate response by the predecessor auditor?

A) Provide a brief statement that there is no reason of which he or she is aware that would prevent accepting the engagement.
B) Send a copy of the entire working paper file to PA.
C) Telephone PA and say that PA should not take the engagement because the fee charged was too large.
D) Send a copy of the tax returns and tax assessments to PA.

Question 63

Each of the following situations involves a possible violation of the provincial institutes Rules of Professional Conduct. For each situation (1) decide whether or not the rules have been violated, and (2) briefly explain how the situation violates (or does not violate) the rules.

A) Carla is the CFO of Xenon Company. Carla was very happy after her husband Dwayne, a partner at a large PA firm was assigned as the new auditor of the company. Carla is confident that this will be helpful to Xenon since Dwayne already knows so much about the business.
Violation? Yes No

Question 64

PAs are members of a professional association that can impose sanctions for violations of the professional code of conduct. What is an example of a severe penalty that can be imposed by a professional association?

A) publication of information about the offence in a newsletter
B) requirement of the completion of training courses
C) requirement to have another peer review conducted within one year
D) expulsion from the professional association

Question 65

You are the senior in charge of the accounts receivable section of the audit of a large clothing manufacturer downtown in the clothing district. The client sells to local clothing stores as well as to other retailers in the province.
Accounts receivables seem to be deteriorating, with many more accounts in the over 90 days column than in the past. You sent out twenty accounts receivable confirmations, but only six were returned. Of these six, only three confirmed the balance as in agreement with the client, while the others indicated that they kept their records on an open item basis (rather than a balance forward basis) and were unable to respond to the confirmation request. When you looked at the prior year's file, it seemed that the same thing had happened last year.
When you phoned the supervisor in charge of the audit engagement, she told you to not bother with follow up, as the engagement was already over budget and costs need to be kept down. You were concerned that you would be unable to state a conclusion with respect to the fairness of the accounts receivable balance and she was really angry with you, saying that she would have to sign off for you then.
Required:
Discuss the ethical and quality issues raised by this audit engagement.

Question 66

Each of the following situations involves a possible violation of the independence requirements of the provincial institutes Rules of Professional Conduct. For each situation, (1) decide whether the Rules have been violated, and (2) briefly explain how the situation violates (or does not violate) the Rules.

A) Mike Lednicky, public accountant, is a partner in the Oshawa office of Arthur & Thompson, public accountants. Mike's brother is employed as an inventory warehouse supervisor (an audit-sensitive position) by Sweeny Appliances, a publicly-held company in Manitoba. Sweeny Appliances is one of Arthur & Thompson's audit clients. Neither Mike nor the Oshawa office of Arthur & Thompson is involved in the audit of Sweeny Appliances.
Violation? Yes No

Question 67

Raul, PA, received a call from his friend Cristobal Franco. He needed an audit urgently, because the bank might call his loan for his computer store CF Ltd. Since Cristobal had been his high school friend and they still played soccer together every two weeks, Raul agreed. Raul and Cristobal had a quick meeting, where Raul fixed the audit fee at $10 000. Cristobal stressed the importance of an unqualified opinion for the bank.
Raul sent two available junior staff to CF's offices. The junior staff were experienced in review engagements, and had been working for Raul for about six months. The two staff had a quick look around the store, noting the documents strewn everywhere. The accounting staff came in and chatted briefly after their smoke break. They were about a month behind on recording transactions, because Cristobal had laid off one sales person. The accounting staff also helped out with providing sales quotes and Cristobal did all of the technical work.
At the end of the day, the junior staff were each given a $250 gift certificate to be used in the computer store. This was great, because CF also sold MP3 players and supplies such as CDs and DVDs.
At dinner that night, the junior staff told their family that it would probably be a great idea to hold off on any computer supplies or equipment purchases that they needed, since CF would likely hold a sale in the next month or two to improve cash flow.
Required:
Identify and discuss the violations in the rules of conduct with respect to CF.

Question 68

Kimora is a senior manager at a public accounting firm. Kimora was assigned to the audit of Toble Corp. Upon arriving at the client, Kimora met with the controller, Brad, who was a classmate in college, 20 years ago. She had not been in contact with Brad since college, but they realized that they still had many friends in common. Brad invited Kimora to go to the company box to watch a hockey game and catch up.
Discuss the issue of independence between Kimora and Toble Corp.

Question 69

The Rules of Professional Conduct require a successor auditor to communicate with the previous auditor. The primary concern in this communication is

A) to acquire information which will help the successor auditor determine whether the client management has integrity.
B) to learn about the client by examining the predecessor's working papers.
C) to enable the successor to perform a more efficient audit.
D) to save the successor auditor time and money in gathering data.

Question 70

What is the difference between auditors and lawyers with respect to privileged information?

Question 71

You are having lunch with a former employee of your firm, a friend of yours. Gino had been laid off last year when he had failed to pass his professional examinations for the third year in a row. Gino told you that he managed to obtain a CPA designation in the past year, and has started his public practice.
He has been circulating flyers and electronic email announcements with fixed rates: $400 for a compilation engagement, $1000 for a review, and $5000 for an audit where revenues are less than $1 million, $15 000 for an audit for a client with revenues up to $5 million. He already has clients to keep him busy for the next three months. He even has some feelers for clients that he personally handled while he was working for your firm - there were a lot of contacts developed during the five years that he was working there! To help attract some of the larger clients, he is considering not charging any fee for the first ten hours spent on tax-related services.
Gino ended the conversation by asking you if you would like to join him in his new firm, because at this rate he'll need a second person real soon!
Required:
Identify the violations in the professional rules of conduct and explain why they are violations.

Question 72

Xiao, PA, is the auditor of Minkle Credit Union, a medium-sized credit union. Xiao has prepared a management letter with several serious control weaknesses. Management agrees with the facts, but does not want to present the letter with the weaknesses to the audit committee or the board of directors. Management has implied that they will request a change of auditors if your firm presents the management letter to the board.
Required: Discuss the actions that Xiao should take. Justify your response.