Auditing and Assurance Services 9th Edition by Alvin Arens,Mark Beasley,Randy Elder

Exercise 22

Refer back to the hypothetical Sun City Savings and Loan case presented in this chapter, and consider each of the following independent situations:
a. Suppose that Pina, Johnson Associates also audited one of the entities who had received one of the large loans that are in dispute. Sam Johnson is not involved with auditing that entity. Is it ethical for Johnson to seek information on the financial condition of that entity from the auditors in his firm? What are the rights of the affected parties in this instance, and what are the costs and benefits of using such information?
b. Suppose that Johnson has determined that one of the entities that owes a disputed loan is being investigated for violating environmental laws and may be sued to the point of bankruptcy by the Environmental Protection Agency. Can Johnson use this information in deciding on the proper loan-loss reserve? What are the ethical considerations?