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Assignment Choice #1: Auditors’ Independence

Reference Case Study 3-45 in the textbook.

You are the partner-in-charge of a large metropolitan office of a regional public accounting firm. Two members of your professional staff have come to you to discuss problems that may affect the firm’s independence. Neither of these situations has been specifically answered by the AICPA Professional Ethics Division. Therefore, you must reach your own conclusions as to what to advise your staff members, and what actions, if any, are to be taken by the firm.

Case 1: Don Moore, a partner in the firm, has recently moved into a condominium that he shares with his girlfriend, Joan Scott. Moore owns the condominium and pays all the expenses relating to its maintenance. Otherwise, the two are self-supporting. Scott is a stockbroker, and recently she has started acquiring shares in one of the audit clients of this office of the public accounting firm. The shares are held in Scott’s name. At present, the shares are not material in relation to her net worth.

Case 2: Mary Reed, a new staff auditor with the firm, has recently separated from her husband. Mary has filed for divorce, but the divorce cannot become final for at least five months. The property settlement is being bitterly contested. Mary’s husband has always resented her professional career and has just used community property to acquire one share of common stock in each of the publicly owned companies audited by the office in which Mary works.

For each case, you are to:

  1. Set forth arguments indicating that the firm’s independence has not been impaired.
  2. Set forth arguments indicating that the firm’s independence has been impaired.
  3. Express your personal opinion. Identify those arguments from part (a) or part (b) that you found most persuasive. If you believe that the firm’s independence has been impaired, make suggestions about how the problem might be resolved.

Your paper should be 3-4 pages in length. Follow APA format, according to CSU-Global Guide to Writing and APA Requirements. Include a title page and reference page. Use two outside academic sources other than the textbook, course materials, or other information provided as part of the course materials.

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Explanation & Answer

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Assignment Title: Auditors’ Independence
Course Name:
Instructor’s Name:
Student’s Name:

Introduction
The independence of the public accounting firms must be not impaired with any nonobjectivity, non-integrity, self-interest, advocacy relation, familiarity with clients, intimidation
from clients, and others (Piattini, 2000). For any identified threat of impairment of the
independence of the public accounting firm, appropriate safeguard should be undertaken before
starting of the engagement (Spencer, 2014).
Case: One
Arguments In favor of saying non-impairment of the public accounting firm’s Independence
• Joan Scott and Don Moore are now currently sharing the same condominium. Thus, it is
likely that materials non-public information regarding the client (whose share is bought by the
Joan Scott) can be shared Moore due to closeness and intimacy.
• Scott is the girlfriend of the Moore. Scott has started to acquire the shares of the audit
client of the firm here. There is an indirect financial interest of the Don Moore here. The audit
opinion of the Moore can be biased. He ma...


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