Question

To prepare for this discussion review the chapter reading assignments. While doing the reading think about your responses to the identified questions, AND respond to your colleagues’ postings in one or more of the following ways:

• Ask a probing question.
• Share an insight from having read your colleague’s posting.
• Offer and support an opinion.
• Validate an idea with your own experience.
• Make a suggestion.
• Expand on your colleague’s posting.

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 Processional Ethics Division. Therefore, you must reach our 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, as recently moved into a condominium which 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 tis office of the public accounting firm. The shares are held in Scot’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 mots. 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 Mary works.

For one case, you are to (Students with last names beginning A-L CASE 1, M-Z CASE 2, your reply should be on the opposing case):

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 pat (a) and (b) that you found most persuasive. If you believe that the firm’s independence has been impaired, make suggestion about how the problem might be resolved.

Answer 1

Opposing the Case :

CASE 1 – Ms John Scott , girlfriend of one of the partner Mr Don Moore, is a stock broker and she has started to acquire shares in one of the audit clients of the Regional public accounting firm. The shares are in Scott’s name and but not material , at this stage.

In the given case, we don’t see any the firms independence is being impaired .

Ms Scott is a stock broker and it is here business to deal into shares , it may be of any organization. Incidently, it is one of the audit client of the firm , which also is fine as there is no relation , with firms independence. Any organization , dealing in shares, can have shareholders for trading or revenue generation.

Dealing with the shares of audit firm is not going to affect the firms independence , being a normal activity. Even if the number of shares are material with respect to the net worth of Ms Scott, it should not affect the firms independence. Ms Scott, being a stock broker, cannot be restricted to acquire shares in the audit client of the firm.

It seems to have a routine dealing by Ms Scott where by chance, it is one of the audit client of the firm.

CASE 2 - Mary Reed’s husband , who is under process of a divorce , has acquired one share of common stock in each of the publicly owned companies , audited by the office in Mary works.

Mary Reed is a new staff auditor and her husband has acquired one share of common stock, which certainly doesn’t amount to a substantial shareholding. Secondly, Mary Reed has already divorced her husband , which is under process and thirdly , Mary Reed’s husbands acquiring one share of the audit client is not going to effect the firms independence , at all. Mary Reed can’t influence the firms independence at all , in the given circumstances.

We don’t think that the firms independence is impaired .            

We don't think that in any of the Case 1 or 2 , the firms independence is being impaired .