Professional Documents
Culture Documents
Review Questions
1.
2.
3.
In return for the faith placed in CPAs by the public, CPAs should continually
seek to demonstrate their dedication to professional excellence. The public
interest is defined as the communitys collective well-being. CPAs handle
ethical conflicts best by acting with integrity, objectivity, and due professional
care and by having a genuine interest in serving the public.
4.
7-2
6.
7.
8.
9.
10. The CPA firms independence would not be impaired as long as Gary Angeles
did not personally participate in the audit of this particular client. Once Gary
7-3
d
b
d
a
a
c
a*
8.
9.
10.
11.
12.
13.
14.
a*
a*
a
a
a
a
c
15.
16.
17.
18.
19.
20.
21.
c
d
a
c
a
a
a
22.
23.
24.
25.
26.
27.
b
d
c
c
b
d
*7. A fee for audit clients which is dependent upon the results achieved by the CPAs efforts
is a contingent fee and is prohibited for audit clients.
*8. An auditors independence would not be considered to be impaired with respect to a
financial institution in which the auditor maintains a checking account which is fully
insured.
*9. The declaration requires the preparer to acknowledge that the return is true, correct,
and complete...based on all information of which the preparer has any knowledge.
b.
7-4
2.
3.
4.
d.
e.
Interpretation
Jack is still not independent, so long as the daughter is a dependent child.
The financial interest is considered direct.
f.
Interpretation
Still not enough. The grandfather (either Jacks father or his father-in-law)
is considered a nondependent close relative, but the appearance of
independence is impaired. The grandfathers investment is material (50
percent) in relation to his net financial resources.
Case 2. a.
Pee and Co. / United Furniture, Inc.: This is a judgment call. In this case,
the services can be considered temporary, mechanical in nature and
performed on a one-time emergency basis. For these reasons, the SEC
would probably not consider independence impaired.
b.
Renson & Co. / Spectrum Corporation Laser Division: The SEC would
consider independence impaired because of the extent of the bookkeeping
services and the relative size of the Division. The only solution that might
work is to have another accounting firm audit the Laser Division financials
7-5
so that Renson & Co. can write a report in reliance on the work of other
independent auditors.
c.
Reyes & Co. / Valley Bank: The SEC would consider independence
impaired because of the family relation of Annabelle, her connection with
Valleys financial statements and the fact that Kris is a member (partner)
in the audit firm. (The PICPA would probably also consider independence
impaired because of the apparent closeness of the two sisters and the audit
sensitivity of Annabelles job).
d.
Cruz & Reyes / Jonas Tomas / Starex Money Market Fund: Jonas is a
member since he is a manager and will provide audit services to SMMF.
Cruz & Reyes independence is impaired since Jonas holds a direct
financial interest.
Yes
No
Since Bella had an employment relationship with the client during part of the
period covered by the financial statements, her independence is impaired.
Case 4. Violation of Code of Professional Ethics?
Yes
No