Question

Beauda Medical Center Lance Popperson woke up in a sweat, with an anxiety attack coming on. Popperson popped two anti- anxiety pills, lay down to try to sleep for the third time that night, and thought once again about his dilemma. Popperson is an associate with the accounting firm of Hodgins and Gelman LLP. He recently discovered, through a casual conversation with Brad Snow, a friend of his on the audit staff, that one of the firm's clients managed by Snow recently received complaints that heart monitoring equipment was malfunctioning. Cardio-Systems Monitoring, Inc. (CSM), called for a meeting of the lawyers, auditors, and top management to discuss what to about the complaints from health care facilities that had significantly increased between the first two months of 2013 and the last two months of that year. Doctors at these facilities claimed that the systems shut off for brief periods, and in one case, the hospital was unable to save a patient who went into cardiac arrest. Popperson tossed and turned and wondered what he should do about the fact that Beauda Medical Center, his current audit client, plans to buy 20 units of Cardio-Systems heart monitoring equipment for its brand-new medical facility in the outskirts of Beauda Questions Assume that both Popperson and Snow are CPAs. Do you think that Snow violated his confidentiality obligation under the AICPA Code by informing Popperson about the faulty equipment at CSM? Why or why not? As a licensed CPA firm, do you think Hodgins and Gelman has any ethical responsibilities in this regard?

Answer 1

Assume both “P” and “S” are CPAs: If the information of the client is shared with the audit team it will not affect the "CPAs" confidential obligation. It is important for the auditor to gather the information about second partner and peer for auditing purpose. Explain how "H” and “G” are affected by the decision of "P”. The "H" and "G" have ethical obligation to both "CSM" and "B" medical center. It should perform the quality audit and should ensure whether the financial statements are prepared as per the guidelines provided by GAAP. It should ensure the information disclosed in the financial statement is relevant and simple to understand. Provide suggestions to the firm: In this situation, the CSM should analyze the risk factor of equipment malfunctioning. This risk will increase the amount of warranty and repair expenses. Hence, the CSM should stop the production until the correction of malfunction of equipment. The important function of state board of accountancy is to protect the rights of the public. There are several steps framed to protect the public rights. The "CPAs contact the state board to get suggestion for handling the particular situations. It is advisable for the firm to contact the legal counsel. The AICPA and State society of CPAs will provide suggestions and solutions to handle the situations.