Question

The firm of Schilling & Co., CPAs, has offices in Chicago and Green Bay, Wisconsin. Gillington Company, which has 1 million shares of outstanding stock, is audited by the Chicago office of Schilling; Welco, of the Chicago office, is the partner in charge of the audit. For each of the following circumstances, indicate whether the public accounting firm’s independence is impaired with respect to Gillington Company.

1. Johnson, a partner in the Chicago office, owns 100 shares of the stock of Gillington. He has no responsibilities with respect to the Gillington audit.

2. Gizmo, a partner in the Green Bay office, owns 600 shares of the stock of Gillington. He has no responsibilities with respect to the Gillington audit.

3. Masterson is a staff assistant in the Green Bay office and owns 10 percent of Gillington’s outstanding common stock. Masterson provides no services to Gillington and is not able to influence the engagement.

4. Schilling, the partner in charge of the entire firm, works in the Green Bay office. He owns 100 shares of Gillington stock (market value $2 per share) but provides no services on the engagement.

5. Gorman is a staff assistant on the audit. Gorman’s mother owns shares of Gillington that are material to her net worth and of which Gorman has knowledge.

6. Harry Brown is a partner in the Topeka office of Hedley & Co., CPAs. Harry's brother is employed in an audit-sensitive position by Jensen Appliances, a publicly held company in Kansas. Jensen Appliances is one of Hedley & Co.'s audit clients. Neither Harry nor personnel from the Topeka office is involved in the audit of Jensen.

7. John Woods is an audit manager with Calden & Co., CPAs, a one-office CPA firm. John owns 100 shares of common stock in one of the firm's audit clients, but he does not provide any audit or non-audit services to the company. Violation?

Answer 1

Schilling & Co. No. Particulars Decision a. Johnson, a partner in the Chicago office, owns 100 shares of the stock of Gillington. He has no responsibilities with respect to the Gillington audit. Independence is impaired b Gizmo, a partner in the Green Bay office, owns 600 shares of the stock of Gillington. He has no responsibilities with respect to the Gillington audit. Independence is not impaired Masterson is a staff assistant in the Green Bay office and owns 10 percent of Gillington's outstanding common stock. Masterson provides no services to Independence is impaired Gillington and is not able to influence the engagement. Schilling, the partner in charge of the entire firm, works in the Green Bay office. He owns 100 shares Independence is impaired of Gillington stock (market value $2 per share) but provides no services on the engagement. Gorman is a staff assistant on the audit. Gorman's mother owns shares of Gillington that are material Independence is impaired to her net worth and of which Gorman has knowledge. Harry Brown is a partner in the Topeka office of Hedley & Co., CPAs. Harry's brother is employed in an audit-sensitive position by Jensen Appliances, a publicly held company in Kansas. Jensen Appliances Independence is not impaired is one of Hedley & Co.'s audit clients. Neither Harry nor personnel from the Topeka office is involved in the audit of Jensen. John Woods is an audit manager with Calden & Co., CPAs, a one-office CPA firm. John owns 100 shares of common stock in one of the firm's audit clients, Independence is not impaired but he does not provide any audit or non-audit services to the company. Violation? f.