Thomas Forehand, CPA

Contemporary Auditing, Knapp Case 4.4 – Thomas Forehand, CPA By Ernst & Young

1. hat pro!ess pro!essiona iona"" standards standards are are re"e#ant re"e#ant to $"ient $"ient a$$eptan$e a$$eptan$e de$isio de$isions% ns% hat hat genera" genera" prin$ip"es do these standards suggest a$$ounting irms shou"d app"y in arri#ing at $"ient  a$$eptan$ a$$eptan$e e de$isions de$isions%% 'denti!y 'denti!y spe$ii$ spe$ii$ measures measures that a$$ountin a$$ounting g irms irms shou"d shou"d ta(e )e!ore de$iding to a$$ept a potentia" $"ient.

The Statements on Quality Control Standards (SQCSs) are the professional standards relevant to client acceptance acceptance decisions. Within the SQCSs, is a section section on acceptance and continuance continuance of  client relationships relationships and speciic engagements. engagements. It suggests policies and procedures procedures should e estalished to provide reasonale assurance that! a) The The li"e li"eli liho hood od of asso associ ciat atio ion n #ith #ith clie client ntss #hos #hose e mana manage gers rs may may lac" lac" inte integr grit ity y is minimi$ed, ) The The irm irm unde undert rta" a"es es only only enga engage geme ment ntss it e%pe e%pect ctss to comp comple lete te #ith #ith prof profes essi sion onal al competence, and c) It approp appropriat riately ely consid considers ers the the ris" of provid providing ing service services. s. The factors that affect the auditor&s decision to accept or retain an audit client are! 'anagement integrity Independence and competence of management and the oard of directors The uality of the organi$ation&s ris" management process and controls *eporting reuirements, including regulatory reuirements +articipation of "ey sta"eholders %istence of related-party transaction The inancial health of the organi$ation       

The auditor can gather information to gain an understanding understanding of the aove factors from previous auditors, prior-year audit e%perience, independent sources of information, intervie#s #ith "ey employees, and past regulatory ilings.

*. Assume Assume that you you +ere +ere Thomas Thomas Foreha Forehand. nd. o+ o+ +ou"d +ou"d you ha#e ha#e respon responded ded to the the -"oan -"oan proposition proposition "aid out )y /ohn /ones% 0o CPAs CPAs ha#e a pro!essiona" pro!essiona" or mora" responsi)i"ity to report i""ega" a$ts $ommitted )y $"ients or potentia" $"ients%

If I #ere Thomas orehand I #ould have thro#n /ohn /ones out of my ofice. I #ould not have gotten involved #ith this type of crime. Thomas uilt his #hole life to ecome a C+0 and had a #ife and children. ecause of this, I #ould deinitely not have involved myself #ith this shady character that I "ne# nothing aout. I thin" it #ould have een selish and unethical to have done #hat Thomas orehand did. 1o#ever, if it #as me I #ould have ended our relationship there. I #ould have told /ohn /ones to leave and not contact me anymore. I #ould not have informed anyone else and the main reason is, I #ould not have "no#n #here the money #as coming from and the fact that illegal drugs #ere involved. If I #ould have "no#n this, then maye I #ould have informed the authorities. 0ccountants I feel do not have a professional oligation oligation to inform the authorities of illegal activities. *athe *atherr, they they have have a moral moral oliga oligatio tion. n. *ule *ule 234 of the 0IC+ 0IC+0 0 Code Code of +rof +rofess ession ional al Conduc Conduct  t 

(Conidential Client Information) states! 0 memer in pulic practice shall not disclose any conidential client information #ithout the speciic consent of the client. (0IC+0, 4552, Section 234). 0ccountant-Client conidentiality is a very sensitive su6ect. 1o#ever, according to raud 'aga$ine, there is no speciic rule or la# that says an accountant has to disclose fraud or illegal acts to the authorities. 0ccountants do have a moral responsiility to report any fraud or illegal acts. veryone has a moral responsiility to report fraud or illegal acts. If #e see crime or hear of crime, especially something li"e illegal drugs eing sold, #e should all #ant these people to get caught and put into 6ail.

. 'denti!y the parties +ho +ere a!!e$ted )y Forehand2s de$ision to $ooperate +ith /ohn /ones. hat responsi)i"ity, i! any, did Forehand ha#e to ea$h o! those parties% 'ndi$ate ho+ ea$h o! those parties +as a!!e$ted )y Forehand2s de$ision.

The follo#ing #ere affected y orehand&s decision to cooperate #ith /ohn /ones! 1imself- orehand had the responsiility to protect his name. 0s a C+0 he uilt up his crediility for years to only end it #ith this thoughtlessness act. 1is ehavior also had a negative impact on the accounting profession. 1is mployees- orehand hand the responsiility to protect the careers of his employees. In result of the situation orehand&s employees ended up loosing their 6os. 1is family-orehand had a responsiility to provide for his #ife and children. y engaging in this act orehand #as sentence to si% years in federal prison, ined 745,333, and reuired to forfeit the 783,333 of cash received from /ones. This affected his family&s livelihood and denied his children of having a father present. 

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4. Thomas Forehand did not intend to )e$ome in#o"#ed in $rimina" a$ti#ity +hen he met  /ohn /ones. 'nstead, /ones goaded Forehand into )e$oming an a$ti#e parti$ipant in his money3"aundering s$heme. hat strategies $an CPAs and )usiness peop"e use to pre#ent  themse"#es !rom stepping onto a -s"ippery s"ope that may e#entua""y resu"t in them )e$oming in#o"#ed in unethi$a", immora", and possi)"y $rimina" $ondu$t%

There are very simple strategies that C+0s can employ to not go do#n this 9slippery slope: and ecome involved in unethical, immoral, and possily criminal conduct. ;ne #ay is to not do #hat  Thomas orehand did. 1old yourself to higher standards and 6ust say no #hen you elieve a situation is unethical or calls your responsiilities as C+0 into 6eopardy. I "no# it is easy to say that  #e #ill all do #hat is right #hen #e are on the outside loo"ing in, ho#ever it #ill protect us from anything criminal or #rong. It is very easy not to go do#n this 9slippery slope:.