Gary James works for Hills & beans, a professional servicesfirm. James was a onetime business partner of former Florida StateSenator Howard Clark and a donor to his campaign. Clark wasrecently charged with conspiring to defraud the IRS out of hundredsof thousands of dollars during the time James prepared tax returnsfor Clark’s business. The allegation is that Clark misclassified$2,268,520 as business expense, when the money went to hischildren’s tuition, a trip to Turks and Caicos Islands, homeremodeling, and more. The amount of taxes Clark’s business owed forthese deductions was $850,748, but only $56,766 was paid. The IRSis preparing charges against James for his role in the matter.
a. Discuss the ethics violations that may have been committed byJames with respect of the AICPA Code discussed in chapter 4.
b. Assume you are the director of auditing for Hills & Beansand Clark approaches you requesting that your firm audit thefinancial statements of his business and prepare a report thatwould be submitted along with a loan of $1 million for hisbusiness.How might the facts of this case influence whether youagree to provide the audit service?
