Question

CD besar de the in charge of the suit of the an designing and impleting Inter controls ceny board of directors expect to receive an y 15 this relationshi the standart of the . . terature. If you relevants de not have it awallable, but yo Ltd want to

Answer 1

Financial Statements of a company needs to be audited by an Independent Auditor who in not affiliated with company in any way. Independent Auditor provides a clear picture of company's worth which helps investors make informed decision.

In the given case, Auditor is substantially interested in the company by holding 20% of its stocks. The company is also founded by his father. This makes him financially interested in the company which may act as hurdle in issuing unqualified audit opinion while reviewing financial statements of company. By electing the same person in board of directors, this person gets involved in day to day decision making of the company's operation. All of these together makes him non independent and he will not be able to issue a unbiased opinion while doing audit.

Thus relationship mentioned in the question is not ok as auditor's independence will be in question for various reasons

- Relationship with founders

- Holding substantial interest in company

- Position in Board of directors of the company

As per Sarbanes-Oxley Act of 2002 these relationships are prohibited for Auditor.