Question

For each of the following scenarios, indicate whether or not independence-related SEC rules are being violated, assuming that the audit entity is a public company. Briefly explain why or why not. a. Adrian Reynolds now works as a junior member of the accounting team at Swiss Precision Tooling, a publicly traded manufacturing company. Three months ago, he worked as a staff auditor for Crowther & Sutherland, a local accounting firm, where he worked on the Swiss Precision Tooling audit team. Crowther & Sutherland is still the auditor for Swiss Precision Tooling. b. Susana Millar finished working for Bircham, Dyson & Bell in August 2012. During that time, she was a concurring partner on the Unigate Dairies assignment (the engagement period on this audit ended in April 2013). In February 2014, Susana took up a position as controller of Unigate Dairies. Bircham, Dyson & Bell is still the dairy's auditor and plans to finish its current audit assignment in March 2014 (19 months after Susana left the firm). C. Janay Butler, a senior auditor, is aware that under SEC rules her accounting firm should not conduct appraisal or valuation services for a public company audit entity. However, her manager has requested that she appraise some specific large inventory items to verify a public entity's estimates, which are relied upon by others. d. Heath & Associates, CPAs, is the auditor of Halifax Investments, Inc., a public company. Heath makes most of its money by selling nonaudit services to audit entities, but it ensures every service it provides for Halifax is in accordance with SEC rules and is preapproved by the company's audit committee. Last year, it billed the following to Halifax: audit fees $0.8 million, tax fees $2.3 million, and other fees $5.2 million. No services prohibited by the SEC were provided by Heath to Halifax, and the fee figures are appropriately disclosed in Halifax's financial statements.

Answer 1

Requirement a

There is a defilement of the independence related SEC rules due to the clashes of interest and past history with the company. In terms of the SEC rules, Adrian Reynolds is not permitted to work with Swiss Precision Tooling in the audit team. The fact that Adrian Reynolds is employed in the accounting team disrupts the independence linked with SEC rules.

Requirement b

There is no abuse of the independence related SEC rules, as the SEC rules only needs for former employee not to take work with their clients for a period of six months. Susanna had left Bircham for 19months. Thus, there is no defilement of independence related SEC rules.

Requirement c

This does not lead to the defilements of the independence linked SEC rules. Since, the appeal on the assessment of some precise large inventory items was useful and suitable in the conduction of the audit. Therefore, the independence related SEC rules are not dishonored in the request for the assessment of the precise large inventory items.

Requirement d

Heath & Associates, CPAs does not disrupt the independence linked SEC rules, since it tracks all the SEC regulations and rules in the auditing and unveil of all expected financial statements information of Halifax. As a result, the case does not lead to defilements of the independence related SEC rules.