You Are Having Lunch with a Former Employee of Your

question 11

Essay

You are having lunch with a former employee of your firm, a friend of yours. Gino had been laid off last year when he had failed to pass his professional examinations for the third year in a row. Gino told you that he managed to obtain a CPA designation in the past year, and has started his public practice.
He has been circulating flyers and electronic email announcements with fixed rates: $400 for a compilation engagement, $1000 for a review, and $5000 for an audit where revenues are less than $1 million, $15 000 for an audit for a client with revenues up to $5 million. He already has clients to keep him busy for the next three months. He even has some feelers for clients that he personally handled while he was working for your firm - there were a lot of contacts developed during the five years that he was working there! To help attract some of the larger clients, he is considering not charging any fee for the first ten hours spent on tax-related services.
Gino ended the conversation by asking you if you would like to join him in his new firm, because at this rate he'll need a second person real soon!
Required:
Identify the violations in the professional rules of conduct and explain why they are violations.

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Definitions:

Perpetual Inventory System

An approach to inventory accounting that directly records transactions of inventory sales or purchases through the use of computerized point-of-sale and enterprise asset management software.

Gross Method

An accounting method for recording purchases at the gross invoice amount before any trade discounts are deducted.

Merchandise Return

Goods returned to the seller from the buyer, often due to defects, dissatisfaction, or other reasons, impacting revenue and inventory levels.

General and Administrative Expenses

Costs related to the overall operations of a company that are not tied directly to a specific functional area like production or sales.