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3-31 Ron Barber, CPA, is auditing the financial statements of DGF, Inc., a publicly held company. During the course of the audit, Barber discovered that DGF has been making illegal bribes to foreign government officials to obtain business, and he reported the matter to senior management and the board of directors of DGF.
a. If management and the board of directors take appropriate remedial action, should Barber be required to report the matter outside the company?
If they take the appropriate remedial action, then Barber is not required to report the matter outside the company. The company is able to report to SEC themselves within one business day and the auditors should get a copy if they did it.
b. Describe Barber’s appropriate response if management and the board of directors fail to take appropriate remedial action.
If they do not take the right action then Barber must communicate within one day to the Securities and Exchange Commission. They are also able to fill out the Form 8-K and resign if they feel that senior management has lost integrity due to illegal activities.

3–43. Thomas Gilbert and Susan Bradley formed a professional corporation called “Financial Services Inc.—A Professional Corporation,” each taking 50 percent of the authorized common stock. Gilbert is a CPA and a member of the AICPA. Bradley is a CPCU (Chartered Property Casualty Underwriter). The corporation performs auditing and tax services under Gilbert’s direction and insurance services under Bradley’s supervision.
One of the corporation’s first audit clients was Grandtime Company. Grandtime had total assets of $600,000 and total liabilities of $270,000. In the course of his examination, Gilbert found that Grandtime’s building with a carrying value of $240,000 was pledged as collateral for a 10-year term note in the amount of $200,000. The client’s financial statements did not

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