Question

Bell Manufacturing, Inc. is a publicly traded company that produces consumer goods for sale, primarily to wholesalers. The company hired your accounting firm, Hogue & Company, more than three years ago under both auditing and consulting engagements to assist with its initial public offering of common stock under the 1933 Securities Act. Hogue & Company is among the 12 largest accounting firms in the United States. It has developed a respectable reputation regarding its ability to help growing companies go public. You are currently an audit manager for Hogue & Company, having been promoted to this position from senior auditor in the last year, due in large part to your successful handling of the Bell Manufacturing account.

You have just returned from lunch with Jay Hoffman, the new chief financial officer (CFO) for Bell Manufacturing, Inc. The purpose of the meeting was to congratulate Hoffman on his recent promotion. You have known Hoffman since you were assigned to this engagement, during which time he has progressed from accounting manager to chief accountant and now to his current position. When you expressed how pleased you were about his promotion, Hoffman explained how proud he was of the accomplishments he has achieved since entering the country as an illegal alien. He then told you that he entered the U.S. illegally because, at the time, that was the only way he could get into this country. He was quick to explain that he has been a U.S. citizen for almost three years and asked that you keep this in confidence.

In connection with your audit of executive payroll, you pulled Hoffman’s personnel file, along with those of all senior executives of Bell. After the lunch meeting with Hoffman, you reviewed the contents of his personnel file. As required by federal law, a Form I-9, Employment Eligibility Verification, from the U.S. Immigration and Naturalization Service, was included in his personnel record. Hoffman completed and signed the form in 1992 at the commencement of his initial employment with Bell Manufacturing. He checked the box indicating he was a citizen of the United States and signed the form, attesting under the penalty of perjury that he had made no false statements or used false documents in connection with the completion of the form. Hoffman’s I-9 Form, along with the official instructions for completion, is presented as Attachment 1.

Since 1986, federal law has required all newly hired employees (citizens and noncitizens) to complete and sign Section 1 of Form I-9. Federal law also establishes that the employer is responsible for ensuring that Section 1 is timely and properly completed. Employers must then complete and sign Section 2 of the form. This process requires employers to examine evidence of employee identity and employment eligibility within three business days of the date employment begins. The employee must present specific acceptable documentation to verify identity and employment eligibility, for example, a U.S. Passport or Certificate of U.S. Citizenship. A complete list of acceptable documentation is provided on page three of Form I-9 (see Attachment 1). To your surprise, Bell Manufacturing never completed Section 2 of Hoffman’s form.

1. As part of your duties as the auditor, should you contact the audit committee about the CFO’s act? Support your answer by researching and discussing guidance provided in the authoritative literature. As a hint, first consider the general guidance provided by the AICPA Code of Professional Conduct (AICPA 1997 updated AICPA 2014) and Statement on Auditing Standards No. 54 (AICPA 1988; updated AS 2405). More specific guidance can be found by examining the Private Securities Litigation Reform Act (1995) and the Sarbanes-Oxley Act of 2002.

Answer 1

At the very first Instance as per AICPA code of professional conduct,  An audit firm who is engaged to audit the financial statements of the firm is not eligible to provide consultancy services.