Thomas and Susan formed a professional practice called “Financial Services” each taking 50%. Thomas is a CPA while Susan is an insurance underwriter. The company performs auditing and tax services under Thomas’ direction and insurance services under Susan’s supervision. One of the company’s first audit clients was Grand Company. Grand had total assets of P6,000,000 and total liabilities of P2,700,000. In the course of his examination, Thomas found that Grand’s building with a carrying value of P2,400,000 was used as collateral for a 10-year term note in the amount of P2,000,000. The client’s financial statements did not mention that the building was pledged as collateral for the 10-year term note. However, as the failure to disclose the lien did not affect either the value of the assets or the amount of the liabilities, and his examination was satisfactory in all other respects, Thomas rendered an unqualified opinion on Grand’s financial statements. About two months after the date of his opinion, Thomas learned that an insurance company was planning to loan Grand P1,500,000 in the form of a 1st mortgage note on the building. Realizing that the insurance company was unaware of the existing lien on the building, Thomas had Susan notify the insurance company of the fact that Grand’s building was pledged as collateral for a term note. Shortly after the event described above, Thomas was charged with several violations of professional ethics. Required: Identify and discuss at least three (3) ethical implications of those acts by Thomas that were in violation of the Code of Professional Conduct.
Thomas and Susan formed a professional practice called “Financial Services” each taking 50%. Thomas is a CPA while Susan is an insurance underwriter. The company performs auditing and tax services under Thomas’ direction and insurance services under Susan’s supervision.
One of the company’s first audit clients was Grand Company. Grand had total assets of P6,000,000 and total liabilities of P2,700,000. In the course of his examination, Thomas found that Grand’s building with a carrying value of P2,400,000 was used as collateral for a 10-year term note in the amount of P2,000,000. The client’s financial statements did not mention that the building was pledged as collateral for the 10-year term note. However, as the failure to disclose the lien did not affect either the value of the assets or the amount of the liabilities, and his examination was satisfactory in all other respects, Thomas rendered an unqualified opinion on Grand’s financial statements. About two months after the date of his opinion, Thomas learned that an insurance company was planning to loan Grand P1,500,000 in the form of a 1st mortgage note on the building. Realizing that the insurance company was unaware of the existing lien on the building, Thomas had Susan notify the insurance company of the fact that Grand’s building was pledged as collateral for a term note.
Shortly after the event described above, Thomas was charged with several violations of professional ethics.
Required: Identify and discuss at least three (3) ethical implications of those acts by Thomas that were in violation of the Code of Professional Conduct.
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