A CPA Agreed to Render Professional Services to All Three

question 12

Multiple Choice

A CPA agreed to render professional services to all three of the shareholders in a corporation.All three shareholders asked the CPA to determine the amount of corporate earnings that should be distributed as dividends and the amount that should be maintained as Retained Earnings to spur the future growth of the corporation.All three told the CPA that they want to "allocate cash flow to maximize everyone's after-tax wealth." Two weeks after the CPA began this assignment,one of the shareholders told the CPA privately that she "desperately needed immediate cash flow from dividends because her mother recently had a stroke and needs to be able to afford to give her mother proper medical care.This shareholder asked that her mother's medical condition be kept confidential,to respect her mother's wishes.The CPA:

• A) Acted properly at the outset of this professional engagement
• B) Acted improperly at the outset of this professional engagement because representation of fellow shareholders automatically creates a dual-client conflict of interest
• C) Acted improperly at the outset of this professional engagement, but now has a duty to complete the engagement to minimize further harm to her clients
• D) Acted improperly at the outset of this professional engagement and has a duty to inform the accountancy licensing board about this misconduct

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Definitions:

Creditor Litigation

Legal proceedings initiated by a creditor to recover debts owed by a debtor, usually when other debt recovery methods have failed.

Security Interest

A legal claim or lien on assets or property, granted to secure the performance of an obligation or repayment of a debt.

Consumer Good

Goods produced and purchased for personal use, as opposed to those made for production or commercial use.

Perfected Interest

A legal status that gives a creditor priority over others in claiming collateral or property rights, typically involving a secured transaction that has been properly filed or recorded.