You are the Partner-in-Charge of a large metropolitan office of a regional CIA f

Question

You are the Partner-in-Charge of a large metropolitan office of a regional CIA 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 which he shares with his girlfriend. John Scott. Moore owns the condominium and pays all of 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 CIA 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 no managerial responsibilities in the firm, has recently separated from her husband. Mary has filed for divorce, but the divorce cannot become final for least five months. The property settlement is being bitterly contested. Mary’s husband has always resented her professional career and has just used community properly to acquire one share of common stock in each of the publicly owned companies audited by the office in which Mary works. Required: For each case, you are to: a. Set forth arguments indicating that the firm’s independence has not impaired. b. Set forth arguments indicating that the firm’s independence has impaired. c. Express your personal opinion. Identify those arguments from part (a) or (b) that you found most persuasive. If you believe that the firm’s independence has been impaired, make suggestions as to how the problem might be resolved

Explanation / Answer

CASE 1

INDEPENDENCE NOT IMPAIRED

INDEPENDENCE IMPAIRED

HOW TO RESOLVE

CASE 2

HOW TO RESOLVE

CASE 1

INDEPENDENCE NOT IMPAIRED

INDEPENDENCE IMPAIRED

• Don & Scott are self-supporting

• Scott is Don’s girl friend
• There is loss of independence, as Don will lean towards protecting Scott

• Scott’s ownership of shares is not material

• Scott’s ownership of shares shows that she has an interest, however small or insignificant. She could buy more shares in the future

• Personal relationship does not affect the business contract

• Personal relationship is behind ‘veil’ transactions and will have impact in business dealings

HOW TO RESOLVE

• Scott has to move out of condominium

• Sell her shares

• Act in a way that they do not have a relationship any further

CASE 2

• Mary is not a manager

• Mary is an employee in said firm

• Resentment in personal relationship is not a reason for audit report

• Property settlement with Mary’s husband could lose Mary’s independence in audit

• One share ownership is insignificant

• Mary’s husband could buy more shares and this could impact further

HOW TO RESOLVE

• Either terminate Mary’s contract as she is anyway new and not past probationary period

• Or employ Mary after informing her that it will be temporary appointment

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.