Phillips Petroleum: Advanced Auditing Case Study

Does a public accounting firm have a responsibility to its partners and employees when they are subpoenaed to testify regarding a client? Phillips Case Issue 3 During an audit what are the purpose of “attorneys’ letters”? How does the fact that attorneys are aware that letters can be routinely subpoenaed affect the quality of the audit evidence yielded by these letters? Phillips Case Issue 4 During an audit Is documentation like the tax accrual audit workspaces affected by Case Issue 5 AAA.

What is the scope and authority of the Aspic’s Statement on Standards for Tax arrives? Want Is ten scope Ana attenuator AT ten I RSI Cellular 230 standards? How do these standards impact an auditor’s tax accrual workspaces for a public company client? Phillips Case Issue 6 AAA. After IRS Announcement 84-46, 1984-18 RIB 18, which was a derivative of the Arthur Young Supreme Court decision, IIRC Section 7602 “fishing expeditions” thru tax accrual workspaces were restrained. What is a “fishing expedition”? B.

How did enactment of IIRC 7525 change protection for the auditor’s tax accrual workspaces? C.

On May 24, 2010, the U. S. Supreme Court denied writ of certiorari for U. S. V. Textron, 577 F.

3rd 21 (CA-I) (en banc). How did the Textron case limit the use of attorney-client privileged communication to protect tax accrual workspaces? Facts Bill Grant an audit partner at Arthur Young & Company was held in contempt of count after refusing to produce certain audit workspaces that had been subpoenaed by a federal grand Jury in the case against Arthur Young client Phillips Petroleum Company.

Judge Allan Barrow wanted Arthur Young workspaces because of an investigation of Phillips that focused on possible tax fraud related to a secret fund hat Phillips’ executives had established to make illegal political contributions. Judge Barrow want Bill Grant to produce two key items in the workspaces one being certain tax accruals made by Phillips and the other attorneys’ letters that Arthur Young had obtained from Phillips law firms. Arthur Young had refused to provide the contested workspaces to the grand Jury on grounds that they contained confidential information that if disclosed would be potentially damaging to Phillips.

Access to such workspaces would make it much easier for the IRS to build a case against a even company.

Bill Grant was released from Jail on October 7, 1975 but was ordered to return to count the following week before Judge Barrow to produce the workspaces if he didn’t comply he would run the risk of being cited with criminal contempt and receive a 17 month Jail term. During that week Arthur Young made a compromise with the Judge to turn over copies of the requested tax accrual workspaces. Judge Barrow also wanted the attorneys’ letters order Arthur Young to provide copies of those as well.

As a result of this case Phillips was hit with a large class action lawsuit here they were charged with illegal campaign contributions in which they plead guilty. Arthur Young tax accrual workspaces were later involved in another client, Amerada Hess, major litigation case.

In 1984, the Supreme Court decided that the IRS has the right to review tax accrual workspaces prepared during an Independent audit. Analysis/ Authority 1 . Bill Grant wasn’t Justified in refusing to provide the requested workspaces to the grand Jury because according to PEPCO Section 5.

Investigations and Adjudications Rule 5105, Requests for testimony or production of documents from persons not associated with registered public accounting firms, when it comes to part B of the rule documents it is clear that the Board, and the staff of the Board designated in an order of formal investigation, may issue an accounting board request to any person, including any issuer, for the production of any document that is relevant or material to an investigation, with appropriate notice, subject to the needs of the investigation.

A request issued pursuant to this Rule shall set forth a reasonable time and place for production, subject to the needs of the investigation.

Also, failure to comply with an accounting board request pursuant to Rule 5105 may result in a Board request for ten Issuance AT a commission Sedona, pursuant to Rule A public accounting firm doesn’t have a responsibility to its partners and employees when subpoenaed to testify regarding a client because according to PEPCO Section 5.

Investigations and Adjudications Rule 5105, part A Testimony states the Board, and the staff of the Board designated in an order of formal investigation, may issue an accounting board request for the testimony of any person, including any client of a gestured public accounting firm, that the Board considers relevant or material to an investigation. (PEPCO Rule 5105) 3. A. Attorneys’ Letter is a letter sent by a CPA to the client’s attorney.

The attorneys’ letter serves as verification for information pertaining to litigation related to management.

This letter apprises the auditor of any pending legislation against the client that could result in financial loss and impact the company’s balance sheet and cash flow. B. This may affect the quality of the audit evidence but according to Auditing Standard No. 15 Audit Evidence, Appropriateness s the measure of the quality of audit evidence, I. E.

, its relevance and reliability. To be appropriate, audit evidence must be both relevant and reliable in providing support for the conclusions on which the auditor’s opinion is based. (BACON AS #1 5) 4.

An audit’s documentation like the tax accrual audit workspaces should not be affected by an auditors’ knowledge that those workspaces can be obtained by the IRS because AU Section 9326 states concern over IRS access to tax accrual working papers might cause some clients to not prepare or maintain appropriate documentation of the ululation or contents of the accrual for income taxes included in the financial statements, or to deny the independent auditor access to such information. If this is case then the client is responsible for its tax accrual, the underlying support for the accrual, and the related disclosures.

Limitations on the auditor’s access to information considered necessary to audit the tax accrual will affect the auditor’s ability to issue an unqualified opinion on the financial statements.

Thus, if the client does not have appropriate documentation of the calculation or contents of the accrual for income taxes and denies the auditor access to client personnel responsible for making the Judgments and estimates relating to the accrual, the auditor should assess the importance of that inadequacy in the accounting records and the client imposed limitation on his or her ability to form an opinion on the financial statements.

Also, if the client has appropriate documentation but denies the auditor access to it and to client personnel who possess the information, the auditor should assess the importance of the client-imposed scope limitation on his or her ability to form an opinion. PEPCO AU Section 9326. ) AAA. The Aspic’s Statements on Standards for Tax Services (Stats) are enforceable tax practice standards for members of the CPA. The Stats apply to all members regardless of the jurisdictions in which they practice and the types of taxes with respect to which they are providing services.

The Stats and interpretations delineate members’ responsibilities to taxpayers, the public, the government and the profession. They are intended to be part of an ongoing process of articulating standards of tax practice for members. (CPA SETS) B. The IRS Circular 230 standards are rules governing the cognition of attorneys, certified public accountants, enrolled agents, enrolled retirement plan agents, registered tax return preparers, and other persons representing taxpayers before the Internal Revenue Service.