Creve Couer Pizza Case Analysis

MARISA APRIYANTI WULANDARI

8335132411
TIARA PRADANI
8335132417

Assignment is written as Part of Midterm Test in Audit 3 Courses

STUDY PROGRAM OF BACHELOR ACCOUNTING

MAJOR IN ACCOUNTING
FACULTY OF ECONOMICS
UNIVERSITAS NEGERI JAKARTA
2016
A. Summary

Creve Couer Pizza Inc

In August 1990s, the accounting profession was shocked when the news media revealed
that for several years James Checksfield, a Missouri CPA had distribute confidential financial
information regarding a client-Creve Couer Pizza to the IRS (Internal Revenue Service).

The CPA had been recruited as a "controlled informant" by the IRS when he was under
investigation by that federal agency for failing to file a federal tax return for several years. After
the CPA began spying on his client, the IRS dropped its case against himsuggesting a classic
quid pro quo scenario.

When a federal indictment was filed against the CPA's client by the IRS, the client
subpoenaed the information the IRS had used to build its case against him. At this point, the
individual discovered that his accountant had provided the IRS with the information used to
incriminate him.

When the facts of this case were publicly reported, the accounting profession was
subjected to considerable embarrassment and criticism. This case raised doubts as to whether
CPAs could be trusted to protect the confidentiality of their clients' key financial and
nonfinancial information.

The federal indictment filed against the Missouri CPA's client was eventually dropped,
apparently because the judge hearing the case was planning to disallow the evidence collected by
the CPA while acting as a controlled informant for the IRS.

In 1990, the Missouri State Board of Accountancy revoked the license of the James
Checksfields CPA for disclosing confidential client information to a third party without the
client's permission.
B. Questions

1. The Problem
From the following case, we assume that James Checksfield, a Missouri CPA fail
to file federal income tax returns from 1974 until 1977. He owed back taxes nearly
$30,000. This is the reason why he becomes a controlled informant for the IRS. He does
not pay his income tax return and it means, there are not any transactions in this case so
we could not make journal entry.

2. The Responsible Person

The one who will be a responsible person in this case is James Checksfield. He
does not pay his income taxes. Thats why he stuck in this problem. The other one who
reponsible from this case is special agent from IRS. He/She choses the wrong person for
being a controlled informant.

3. The Wrong Journal Entry

The problem tell us that there are not any transactions. The journal entry will be
new, the right transaction that should be record is

Income Tax Expense $30,000

Cash $30,000

4. The Right One

James should pay his taxes from 1974 until 1977. He owes taxes for $30,000. The
journal entry from this transaction is

Income Tax Expense $30,000

Income Tax Payable $30,000

5. Conclusion

CPA who provide accounting, taxation, and related services to small business
should have responsibility to serve as the moral conscience of their clients. The moral
conscience can preclude both intentional misrepresentation of fact and the deliberate
slanting of information.

Auditors should have moral or profesional responsibility to turn in clients who are
cheating on their taxes and violating other laws.