Independence.INDEPENDENCE 1. A member's firm (firm A) is not independent with respect to a corporation. To what extent can firm A's staff participate in the audit of the corporation's financial statements to be performed by firm B? 2. A member has asked an audit client's controller to accept a managerial position with the firm. If the controller accepted the employment position, will the firm's independence be considered to be impaired with respect to the audit client? 3. The AICPA AICPA See American Institute of Certified Public Accountants (AICPA). Code of Professional Conduct provides that independence shall be considered to be impaired with respect to an enterprise if, during the period of a professional engagement or at the time of expressing an opinion, a member has a joint, closely held A phrase used to describe the ownership, management, and operation of a corporation by a small group of people. In a closely held corporation, the same people often act as shareholders, directors, and officers, and no outside investors exist. business investment in the enterprise or with any officer, director or principal stockholder that is material in relation to the member's net worth or to the net worth of the member's firm. What constitutes a "joint, closely held business investment"? 4. A member and the president of an audit client purchased a vacation home Vacation Home A home separate from an individual's primary residence that is used for recreational purposes and may also be rented out at unused times. Notes: For tax purposes, those who rent their vacation homes may result in a lower amount of allowable expense for their personal use. Is the purchase considered a joint, closely held business investment that could affect the firm's independence with respect to the audit client? INTEGRITY AND OBJECTIVITY 5. During the performance of an attest To solemnly declare verbally or in writing that a particular document or testimony about an event is a true and accurate representation of the facts; to bear witness to. To formally certify by a signature that the signer has been present at the execution of a particular writing so as engagement, a member of a firm was offered employment as the controller of an attest client. The member is seriously interested in the offer and is planning to discuss the matter with the client. Does the employment offer affect the firm's ability to complete the attest engagement? FORM OF ORGANIZATION AND NAME 6. A member practices public accounting in a two-person partnership. If the member's partner retires and the firm becomes a sole proprietorship A form of business in which one person owns all the assets of the business, in contrast to a partnership or a corporation. A person who does business for himself is engaged in the operation of a sole proprietorship. , may the member continue to use the retired partner's name in the firm's title? ANSWERS 1. Firm A staff may participate in the audit engagement without impairing firm B's independence with respect to the corporation as long as firm B uses firm A's work in a manner similar to that of internal auditors Internal auditor An employee of a company who analyzes the company's accounting records to that the company is following and complying with all regulations. and complies with AICPA statements on auditing standards Statements on Auditing Standards, commonly abbreviated as SAS, provide guidance to external auditors on generally accepted auditing standards (abbreviated as GAAS) in regards to auditing an entity and issuing a report. . 2. The firm will be considered to be independent if the controller disassociates him- or herself from the client and does not participate in the audit engagement covering the period of his or her association with the client. 3. A joint, closely held business investment is subject to control (as defined in Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). Statement no. 94, Consolidation of All Majority-Owned Subsidiaries majority-owned subsidiary A firm in which more than 50% of outstanding voting stock is owned by the parent company. ) by the member, the client, its officers, directors or principal stockholders, individually or in any combination (see ethics ethics, in philosophy, the study and evaluation of human conduct in the light of moral principles. Moral principles may be viewed either as the standard of conduct that individuals have constructed for themselves or as the body of obligations and duties that a ruling no. 80, AICPA Professional Standards, ET section 191.160-1). 4. Yes. Independence would be considered to be impaired if the joint, closely held business investment is material to the member's net worth. 5. Because a member is considering accepting an employment offer, he or she must remove him- or herself from the attest engagement until the offer is rejected or employment is no longer sought. If the member does not remove him- or herself from the engagement voluntarily and the firm subsequently discovers that he or she considered accepting or accepted the position during his or her participation in the attest engagement, the firm should consider what, if any, additional procedures may be necessary to ensure the member's work was performed objectively and with integrity. 6. Under Rule 505, the member may continue to include the retired partner's name in that of the firm for up to two years after becoming a sole practitioner. |
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