Question

YOUCPA is a regional CPA firm engaged in public audit work of small- and medium-size firms in the Midwest. The YOUCPA firm has their main office in Chicago, Illinois, and regional offices in Minneapolis, Minnesota and Indianapolis, Indiana. The managing partners are located in Chicago. YOUCPA also provides tax preparation and information consulting to customers and is an approved PCOAB audit firm.

Your client, the publicly traded Fresno Freezer Corporation, is located in Elgin, Illinois, a small city located outside of Chicago. The client has the main plant there and has distribution centers in Indianapolis and Minneapolis.

The Fresno Freezer Corporation has contracted with YOUCPA for an audit. During the audit, the audit team has asked you to determine if everyone on the engagement team is independent.

The following individuals are on the engagement team and on the management of YOUCPA:

Sarah Ball, Senior Partner, YOUCPA

Bill Davis, Managing Partner, YOUCPA

David Youssef, Manager of Taxation Services, YOUCPA

Yewel Faraday, Manager of Information Consulting, YOUCPA

Frank Bell, Supervisor of Auditing assigned to Client, YOUCPA

Beth Wright, Supervisor of Auditing assigned to Client, YOUCPA

Wilbur Singation, Auditor, YOUCPA

Sam Martin, Auditor, YOUCPA

Mary Franks, Auditor, YOUCPA

Phil Cole, Auditor, YOUCPA

Callie Smart, Auditor, YOUCPA

You, Auditor, YOUCPA

Background of each individual:

The following individuals are on the engagement team and on the management of YOUCPA:

Sarah Ball, Senior Partner, YOUCPA

Manages the YOUCPA partnership

No financial interest in client

No relative with firm

No past history working with client in a direct manner (meaning working for the client as an employee)

Bill Davis, Managing Partner, YOUCPA

Managing the audit of the client

No financial interest in the client

No relative with the firm

No past history working with the client in a direct manner

David Youssef, Manager of Taxation Services, YOUCPA

Manages the taxation services for the accounting firm

No financial interest in the client

No relative with the firm

No past history working with the client in a direct manner

Yewel Faraday, Manager of Information Consulting, YOUCPA

Manages the information consulting for the accounting firm

Yewel has no financial interest in the client

No relative with the client in a direct manner

Frank Bell, Supervisor of Auditing assigned to Client, YOUCPA

Will supervise the audit at the main plant

No financial interest in the client

Wife works with client as a worker in the plant

Wife has no control or influence on the impact or creation of the financial statements

Wife has been working there for 20 years

Beth Wright, Supervisor of Auditing assigned to Client, YOUCPA

Will be auditing the distribution locations

No financial interest directly in the client

Does own a mutual fund that is invested in the client

Mutual fund estimated value is 0.01% of the total value of the stock market value of the client

Mutual fund makes all decisions on who, when, and how much they invest in corporations

Total investment in the mutual fund is $1,000

Wilbur Singation, Auditor, YOUCPA

No financial interest in the client

No relative with the client

No past history working with the client in a direct manner

Has contacted a head hunter looking for a new, better position

Head hunter has discussed his qualifications with many firms, discreetly

Wilbur does not know the firms or the content of those discussions

Sam Martin, Auditor, YOUCPA

No financial interest in the client

Cousin works with the client in a role as the mail distribution person

Cousin handles the mail

Conversation with cousin has been rough in the past over a small debt the cousin still will not pay

The amount of the debt is $500

Mary Franks, Auditor, YOUCPA

No financial interest in the client

No relative with the client

No past history working with the client in a direct manner

Phil Cole, Auditor, YOUCPA

Recently joined the team

Used to work at the client less than a year ago

Was responsible for financial planning and control

Left to experience the auditing profession

Callie Smart, Auditor, YOUCPA

Just graduated from a prestigious online university in Illinois

No relative or any direct relationship to the client

No investment in the client

You, Auditor, YOUCPA

No investment in the client

No past working relationship with the client in a direct manner

No relatives working at the client

Assignment Guidelines:

For each individual on the engagement team and on the management of YOUCPA, complete the following:

Determine if they are or are not independent.

Explain your reasoning.

Answer 1

Please see the table below:

Sl. No.	Individual	Independent (Yes / No)	Reasons
1.	Sarah Ball, Senior Partner, YOUCPA	Yes	No financial interest in the client; No relative with the firm; No past history working with the client in a direct manner
2.	Bill Davis, Managing Partner, YOUCPA	Yes	No financial interest in the client; No relative with the firm; No past history working with the client in a direct manner
3.	David Youssef, Manager of Taxation Services, YOUCPA	Yes	No financial interest in the client; No relative with the firm; No past history working with the client in a direct manner
4.	Yewel Faraday, Manager of Information Consulting, YOUCPA	Yes	No financial interest in the client; No relative with the client in a direct manner
5.	Frank Bell, Supervisor of Auditing assigned to Client, YOUCPA	Yes	Only controversial point is that wife works for the client. However the wife is not occupying any position of significance. Her ability to influence anything is limited. So the reason is not material enough for loss of Frank Bell's independence.
6.	Beth Wright, Supervisor of Auditing assigned to Client, YOUCPA	Yes	Only controversial point is indirect investment through a mutual fund. But the quantum and proportion of investment both are insignificant and immaterial from the perspective of jeopardising the independence.
7	Wilbur Singation, Auditor, YOUCPA	Yes	The adverse point is discussion of head hunter with several other firms. But Wilbur is not in direct interaction. He is not in direct knowledge of the firm and the content of discussions. So this point is insignificant and immaterial.
8	Sam Martin, Auditor, YOUCPA	Yes	Her cousin works at the client's place but not in a position of influence and significance. So this point will be immaterial and insignificant.
9	Mary Franks, Auditor, YOUCPA	Yes	No financial interest in the client; No relative with the firm; No past history working with the client in a direct manner
10	Phil Cole, Auditor, YOUCPA	No	His previous association with the client is recent and significant. He may have to audit his own acts of the past. He may be biased and may lose his independence.
11	Callie Smart, Auditor, YOUCPA	Yes	Just graduated from a prestigious online university in Illinois; No relative or any direct relationship to the client; No investment in the client
12	You, Auditor, YOUCPA	Yes	No investment in the client; No past working relationship with the client in a direct manner; No relatives working at the client