Case Study for Gloria and Deloria’s Public Accounting Firm

First Competency-Based Exam in

AUDTG411 (05206) Assurance Principles Prof Ethics & Good Governance
First Term Second Semester S.Y. 2018-2019
1:30 – 2:30

Submitted to:
Prof. Mark Glenn G. Parpan

Submitted by:
Aprile H. Anonuevo

26 November 2018
Case

Gloria and Deloria, CPAs, have recently started their public accounting firm and intend to provide
attestation a variety of consulting services for client, which are all nonpublic. Both Ms. Gloria and
Deloria have particular expertise in designing payroll and other disbursement systems. Ms. Gloria is
concerned about whether any of the following services would impair their audit independence.

A. For each of the services in the accompanying table provide a judgement as to whether providing
the service would impair attest independence. In all 12 situations, assume that management has
designated a management-level individual to be responsible for overseeing the CPA’s services and
established appropriate internal control. Also, assume that the client is privately held and does not
report to the SEC.

B. Now assume that the 12 services are being contemplated for nonattest clients. Which of the
services does the AICPA Code of Professional Conduct prohibit under this assumption?

Case Study

I. Statement of the problem

 Does the management do a regular inspection as to how the designated individual
enforces the internal and quality control?
Strong implementation of internal and quality controls will definitely grip the dignity of
the firm.
 Is the level of expertise of the accountants sufficient to accommodate their upcoming
clients?
According to the AICPA Code of Professional Conduct Article V, a member should observe
the profession's technical and ethical standards, strive continually to improve
competence and the quality of services, and discharge professional responsibility to the
best of the member's ability.

 Are the services offered by the firm conforms to the Independence Rule of Audit?
As professional accountants, we oath to follow the standards and conducts implemented
in the accountancy profession. Therefore, it is expected of us to always render a righteous
service.

II. Review of Related Literature

The increasing competition between organizations and the growing satisfaction

demands of the customers has prompted many of the organizations to redefine their
strategical procedures to ensure their existence. Quality is an important factor when it comes
to any product and accounting firms or any service provider is not an exemption.
In the auditing world, our clients’ trust and criticisms are very important. This
somehow defines our image as service providers. According to the study of Vaicekauskas
(2014), in order to improve confidence in auditor's report and to reduce an audit expectation
gap, it is necessary to ensure an appropriate level of transparency in the audit firms. The main
objective here was to investigate whether the audit firms provide sufficient transparency of
their audit quality control system in annual transparency reports. This objective was achieved
by evaluating whether the transparency reports contain elements disclosing firm’s quality
control system, description of its politics, procedures and techniques in use. Greater
 transparency has a positive impact on clients and third-parties trust in audit’s functionality,
thus enabling the stakeholders to assess the quality of audit services.
Glover (1993) points out that a successful Quality Management system becomes the
way of life for the organization and its people. Therefore, management should stress to
reinforce the management and employee behaviors that reflect Quality Management values.
To assess the quality of service and procedures in an accounting firm, peer review is
conducted. The peer review helps to monitor a CPA firm’s accounting and auditing practice.
The goal of the practice monitoring, and the program itself, is to promote and enhance quality
in the accounting and auditing services provided by the CPA firms subject to these standards.
This goal serves the public interest and enhances the significance of AICPA membership and
accounting and audit quality.

III. Analysis and Evaluation

As we know, the management of the firm has designated a management-level
individual to be responsible for overseeing the CPA’s services and established appropriate
internal control. It wasn’t declared as to how often the management of the firm checks and
evaluates the performance of the appointed employee with regards to the enforcement of
the internal and quality control. Since they are conducting an attestation service it is very
important for them to know the status of their controls.
Given that Gloria and Deloria are certified public accountants, they’re professionally
and intellectually equipped as to how an accountant should be. They’re focus is in designing
payroll and other disbursement systems and both of the owners also possessed expertise in
this field therefore, they are competent enough to practice the conduct of due care.
List of services are provided by the management for us to assess whether it conforms
or impaired the independence rule. I examined each situation through the basis from Public
Company Accounting Oversight Board (PCAOB) ET Section 101 – Independence. Here are my
findings:

Any of the services mentioned may be performed when the client is not an attest client.

Services for attest clients:

Situation Service Description Independence Additional Information

Impaired(
Yes,No,
Indeterminate)
1 Customize and implement a prepackaged Indeterminate This will not impair the
payroll system independence provided
the client makes all
management decisions.
2 Manage the portion of a client’s local area Yes Management should
network system related to payroll. designate a competent
individual.
3 Using payroll time records approved by No
management, generate unsigned payroll
checks on a continuing basis for the client;
the client signs the checks.
4 Prepare the payroll tax return form and sign Yes
it on behalf of management.
5 Approve employee time cards. Yes
6 Accept responsibility to sign checks, but only Yes
in emergency situations.
7 Monitor employee time cards and make Indeterminate Whether management
changes when errors are detected approves the changes.
8 Post client approved entries to client’s trial No
balance.
9 Provide all the initial training and instruction No
to client employees on a newly implemented
payroll information and control system
10 Screen candidates and recommend the most Indeterminate Whether criteria for
highly qualified candidate to serve as evaluation of candidates are
treasurer for the client. client approved.
11 Supervise client personnel in daily operation Yes
of the payroll system
12 Present payroll business risk considerations Yes
to the board of directors on behalf of
management.

IV. Alternative Courses and Evaluation of Consequences

Alternative Courses Advantage Disadvantage

At least once a month inspection Constant revisit and review of the Inspection of controls can be a
of internal and quality control regulations and controls. They hassle and time-consuming.
can easily assess if enhancement
or change is needed.

Being more attentive to the Being on time in changes will Attending to more seminars and
changes of the standards/ make your outputs more programs can be expensive and
attending more seminars appropriate. Attending to more time-consuming.
seminars can give you more
knowledge and skills. It can also
help you remember some
information that you might have
forgotten.
Reviewing the standards and code Reviewing standards from time to Reviewing the standards and code
of conduct/consulting experts if time specially when applied to of conduct can be a hassle and will
help is needed in some works services and consulting an expert require time. Consulting an expert
on works that are vague for you to can be an additional expense to
accomplish can boost your the operation.
confidence because you are
complying appropriately.

V. Recommendation
All the alternative courses will definitely be a benefit to the firm but if I would firmly
recommend the third course. As a practitioner of a profession, it is our duty and responsibility
to always review the standards and conducts that we need to follow for us to be efficient and
effective. We all know that we also have limitations so to cover that up, it is always to consult
an expert to appropriately do the work.
VI. Conclusion
Instead of dwelling in mistakes, we should always remember that even if how far
we’ve come already, we will still and always have a room for improvement. It is great that our
technology can help us to easily look and review the standards and code of conduct. We
should be grateful that in just some type of letters in a keyboard it can already give us results.
It is one way of telling ourselves that in case of doubts in our work, we can always refer to our
effective standards.

VII. References
Farooq, G. (1997). Quality management practices among A/E organizations (Order
No. 1390782). Available from ProQuest Central. (304464842). Retrieved from
https://search.proquest.com/docview/304464842?accountid=31259
Independence, Integrity, and Objectivity. Retrieved from https://pcaobus.org/Stand
ards/EI/Pages/ET101.aspx
Peer Review Summary. Retrieved from https://www.aicpa.org/research/standards/
peerreview/peer-review-summary.html
Vaicekauskas, D. (2014). A STUDY ON AUDIT FIRM’S QUALITY CONTROL SYSTEMS.
Volume 9, Number 1. Retrieved from http://erd.asu.lt/ssaf/article/view/150.