AICPA Professional Ethics

According to the AICPA Code of Professional Conduct Section 53 – Article II: The Public Interest, “Those who rely on certified public accountants expect them to discharge their responsibilities with integrity, objectivity, due professional care, and a genuine interest in serving the public” (CP pg. 7). Young & Brobeck, LLP did not uphold these principles and did not comply with GAAP thus, resulting in a breach of their duty of care (CP pg. 2). The auditor's unqualified opinion included an investment made in 2004 worth $5,100,000 that Sensor Circuits sold to Greenco for an $8,000,000 non-interest bearing note due in 5 years (CP pg.1,2). Rico recorded the transaction as a gain on sale of $2,900,000 (see Appendix, Figure 1). According to APB Opinion 21, “the present value of a note that stipulates either no interest or a rate of interest that is clearly unreasonable should be determined by discounting all future payments on the notes using an imputed rate of interest” (CP pg. 6). When considering that this note should have a 15% interest rate based on Greenco’s credit, the present value of the note is $3,977,413.88 (Financial Accounting Concept 7 pg. 6). Please refer to Appendix, Figure 2 to see the corrected accounting entry that illustrates a Notes Receivable of $3,977,413.88 and the loss incurred due to the sale of the investment. …show more content…
BILY, et al Plaintiffs and Respondents, v. PEAT YOUNG & COMPANY, Defendant and Appellant, the proceedings were as followed: “we find that since Peat Young was told that the audited financial statements would be used to solicit funds from prospective investors as part of its public offering and since the plaintiffs here were exactly such investors, Peat Young owed them a duty of care” (CP pg.12). Due to the fact Rico neglected to calculate the present value of the note, Bank of Stars approved a $3,000,000 loan contingent on this information (CP pg.