Auditor’s Independence
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Auditor’s Independence
Case No. 1:
a. Moore and Scott are not married or related; they are merely friends. They have made no special commitments to one another, and therefore the relationship is not equivalent to that of a spouse. Substantial differences exist between their relationship and that of marriage. For example, their relationship does not create community property or rights of inheritance. Hence, the joint financial interests …show more content…
If such a situation is assumed to impair independence, a CPA's professional career could easily be held hostage in any marital disagreement. Also, the investment is not under Mary Scott's direct control. Hence, it should be considered an indirect investment, rather than direct. Since it is not material in amount, independence is not impaired. Finally, it is reasonable to assume that the firm would have safeguards to mitigate threats to independence.
b. Interpretation 101-1 specifically prohibits "any direct . . . financial interest" in an audit client by the CPA or his or her firm. Financial interests of a CPA's spouse are attributed directly to the CPA. The Code of Conduct does not recognize the degree of harmony within the marriage as relevant. Mary and her husband are married. Thus, his direct financial interest in her firm's audit clients impairs her independence. (The independence of the firm also will be impaired if she participates in the engagement.)
Also, since the investment is community property, Mary stands to benefit or lose as a direct result of fluctuations in the client's stock price. Materiality is not an issue with respect to direct financial
Name --------------------------------------
Student ID --------------------------------
Course ------------------------------------- Department-------------------------------- Instructor ---------------------------------- Date -----------------------------------------
Auditor’s Independence
Case No. 1:
a. Moore and Scott are not married or related; they are merely friends. They have made no special commitments to one another, and therefore the relationship is not equivalent to that of a spouse. Substantial differences exist between their relationship and that of marriage. For example, their relationship does not create community property or rights of inheritance. Hence, the joint financial interests …show more content…
If such a situation is assumed to impair independence, a CPA's professional career could easily be held hostage in any marital disagreement. Also, the investment is not under Mary Scott's direct control. Hence, it should be considered an indirect investment, rather than direct. Since it is not material in amount, independence is not impaired. Finally, it is reasonable to assume that the firm would have safeguards to mitigate threats to independence.
b. Interpretation 101-1 specifically prohibits "any direct . . . financial interest" in an audit client by the CPA or his or her firm. Financial interests of a CPA's spouse are attributed directly to the CPA. The Code of Conduct does not recognize the degree of harmony within the marriage as relevant. Mary and her husband are married. Thus, his direct financial interest in her firm's audit clients impairs her independence. (The independence of the firm also will be impaired if she participates in the engagement.)
Also, since the investment is community property, Mary stands to benefit or lose as a direct result of fluctuations in the client's stock price. Materiality is not an issue with respect to direct financial