Question

for each of the situations listed, identify which of three principles (integrity, objectivity and independence, or due care) from the aicpa code of professional conduct is violated. assume all persons listed in the situations are members of the aicpa. (note: refer to the aicpa code of professional conduct.)
a. kang purposely excludes a large amount of accrued salaries payable from this year’s financial statements so his company’s debt - to - equity ratio appears lower to investors.
b. ari’s company determines year - end bonuses based on revenue growth. ari records the sales of gift cards during this month as revenue rather than as unearned revenue. none of these gift cards have been used by customers as of the end of the current month. by recording the gift card sales as revenue in the current period, revenue will be higher and ari’s bonus will, as a result, be higher as well.
c. hadley, a cpa, is an associate at a regional public accounting firm. hadley’s firm is auditing a local payroll company. hadley does not disclose that her husband is a manager at the payroll company.
d. a new revenue recognition standard has been issued by the financial accounting standards board (fasb) and the international accounting standards board (iasb). john does not attend training on the new revenue recognition standard because he is busy dealing with the accounting impact of a merger.

Explanation:

a. Kang is deliberately distorting financial statements for a better - looking ratio, which is a lack of honesty and violates integrity.
b. Ari misclassifies gift card sales to inflate revenue and increase his bonus, showing a lack of honesty and violating integrity.
c. Hadley has a personal relationship with a manager at the audited company and fails to disclose it, which affects her objectivity and independence.
d. John fails to keep up - to - date with new accounting standards due to being busy with other tasks, which is a lack of due care in maintaining professional competence.

Answer:

a. Integrity
b. Integrity
c. Objectivity and independence
d. Due care