Question

Audit Risk and Rules

For each situation (1-5), identify the most applicable AICPA rule of conduct and whether there is a violation or no violation of the rule (A-F). One or moreletters may not be used.
Rule 101: Independence; no violation
Rule 101: Independence; violation
Rule 301: Confidential Client Information; no violation
Rule 301: Confidential Client Information; violation
Rule 503: Commissions and Referrals; no violation
Rule 503: Commissions and Referrals; violation
______ 1. Brandon Frisby, CPA, found out that his client, Uptonogood, Inc., had failed to properly account for several leases. Frisby informed Uptonogood'smanagement that he must issue a qualified audit report and disclose the lease problem in the report. Uptonogood's management indicated that such a disclosure wouldconstitute a disclosure of confidential information. Nevertheless, Frisby rendered the qualified audit report, including an explanatory paragraph about theinadequate lease accounting.
______ 2. Priscilla Hudson, CPA, a partner in Hudson and Danhoffer, CPAs, holds the position of honorary director for the Friends of the Symphony Orchestra, a firmaudit client.
______ 3. The wife of Gerald Skoch, CPA, is the controller of Fine Corporation. Skoch is an audit partner for Barnes and Bucknell, CPAs, in their Long Islandoffice. The Long Island office of Barnes and Bucknell audits Fine Corporation, but Skoch is not part of the audit team and provides no other services to FineCorporation.
_______4. Johnny Beacon, CPA, is the auditor of Novak Wholesale, Inc. Beacon received a 10% commission from Computer Systems, Inc. for hardware sold to NovakWholesale, Inc. The sale was made based on Beacon's recommendation to Novak Wholesale that the company needed a new accounting information system. Beacon disclosedthe commission to Novak's management. Beacon also performs an annual audit for Novak.
______ 5. Cecilia Hart, CPA, provides tax services to Myers Company. Hart received a 10% commission from Computer Systems, Inc. for hardware sold to Myers Company.The sale was made based on Hart's recommendation to Myers Company that the company needed a new accounting information system. Hart disclosed the commission toMyers' management.

The audit risk model includes the four risks listed below. Place the correct letter of the type of risk with the related definition below.
A. Inherent risk
B. Audit risk
C. Control risk
D. Detection risk
___1. The probability that audit procedures will fail to produce evidence of material misstatements.
___2. The probability that material misstatements have occurred in transactions entering the accounting system.
___3. The probability that an auditor will give an inappropriate opinion on financial statements.
___4. The probability that the client's internal control policies and procedures will fail to detect material misstatements if they have entered the accountingsystem.

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