1. Indicate if independence is required for an accountant to perform the following tasks:
a. Render tax advice to a nonaudit client
b. Issue an audit opinion concerning a government run airport
c. Issue a review opinion concerning quarterly reports of a privately held company
d. Make recommendations as an internal auditor to your employer
e. Determine proper account classifications prior to recording journal entries that will appear on your employer’s books and affect the content of its year-end audited financial statements
f. Issue an audit opinion concerning the financial statements of an employer-funded pension plan
g. Provide litigation-related advice to a nonaudit client
4. Ryan and Darla are married. Darla is partner at Ernst and Notold, CPAs, where she serves as the lead engagement partner on the audit of Mortis Company. Darla does not own any stock in Mortis Company, but Ryan owns 1% of Mortis Company’s preferred stock. Ryan’s ownership of Mortis stock is not material to his net worth.
a. Does Ernst and Notold, CPAs satisfy the independence standard to audit Mortis?
b. Would your answer be the same if Ryan was Darla’s brother instead of her husband?
c. Would your answer be the same if Ryan was Darla’s grown son who is married to a highly successful investment banker?
5. A CPA firm has numerous partners, all of whom work out of the firm’s sole office in New York City. Jeanne is the lead attest partner on the audit of Bell Bank, a small financial institution located in mid- town Manhattan. The audit team is comprised of five professional staff members and two administrative staff members. Tony is the managing partner of the firm, who also serves on the firm’s Compensation Committee.
Casey is the partner in charge of quality control monitoring for the firm, and Carina is the CPA firm’s technical expert on derivatives valuation and auditing. Carina was consulted by the audit engagement team to help resolve a difference of opinion between the client and the firm on how a securitization transaction should be reported. Liam is a tax manager who spent four hours addressing a client matter with the state sales tax authorities.
Which of these individuals is a covered member regarding the audit of Bell Bank?
6. Sterling, CPAs has offices in major cities throughout the United States. Julieanne, a partner at Sterling, has a brother named Hudson who recently accepted a position as CFO of Tivoli Gardens, Inc. The lead partner on the Tivoli Gardens engagement is located in the firm’s Minneapolis, Minnesota office, the client is located in Iowa, and partner Julieanne is located in Denver, Colorado. Julieanne spends all of her professional time auditing Owen Cornery, Inc., an unrelated glass manufacturer.
Does Sterling, CPAs have the independence to audit Tivoli Gardens, Inc.?
Explanation & Answer length: 2 pages
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