Auditing and Assurance Services 1st Edition by Iris Stuart

Exercise 10

Code of Professional Conduct and tax preparation. An article in The Wall Street Journal 2 indicated that the big four audit firms earn approximately 20% of their total revenue from tax preparation. The article reported that big four accounting firms typically use temporary workers and part-time employees to prepare tax returns in the tax season, sometimes setting up separate "compliance centers" staffed by these employees and shipping returns to these central locations for processing. The temporary workers are paid as little as $10 per hour, but the clients are billed at the rate for big four employees, as much as $100 per hour or more. Most firms hide their use of temporary employees because they believe their clients are "indifferent" about who prepares their returns as long as a partner or manager of a big four firm signs it. The head of the tax division for one of the firms sees no reason to advise a client that a temporary employee filled out its tax return. "It doesn't seem relevant." This leads clients to believe they are receiving the services of accountants with "elite credentials" when they pay the premium fee charged by the big four accounting firms. A tax client of one of the firms, when informed of this practice, said that he is generally satisfied with the work the firm has done. He had known that the tax partner signing the return didn't actually prepare it. "But in all honesty, they should tell the clients" about mailing their return to temporary employees in other cities.
a. Does this practice violate the Code of Professional Conduct Explain your answer.
b. Do you believe that all clients are indifferent about who prepares their returns as long as a big four manager or partner signs them
c. Why do big four firms engage in this practice Do they really believe that the client doesn't care