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In the following circumstance would a CPA who audits XM Corporation lack independence?
The CPA and XM’s president each owns 25% of FOB Corporation, a closely held company.
Yes ---- Independence is impaired if, during the period of the professional engagement, “a covered member had a joint, closely held investment that was material to the covered member.” A joint, closely held investment by the member and the client (or its officers, directors, or an owner with significant influence) enables them to control the investee entity or property.
Fact Pattern: A CPA firm was purchased by a public company. The acquirer performs other professional services and has banking, insurance, and brokerage subsidiaries. The owners and employees became employees of a subsidiary. Also, the previous owners formed a new CPA firm that provides attest services. It leases employees, offices, and equipment from the parent, which also provides advertising, billing, and collection services.
In the alternative practice structure (APS) of which the new firm is a part, covered members are closely aligned with other persons and entities. Who is subject to the same independence rules as covered members?
An employee leased by the firm from the parent.
The independence rules ordinarily apply in their entirety only to the persons and entities included in the definition of a covered member: (1) the traditional firm (the new firm), (2) its owners, (3) individuals employed or leased by the new firm, and (4) entities controlled by such persons. The independence rules also apply in their entirety to (1) direct superiors of a partner or manager who is a covered member and (2) entities within the APS subject to significant influence by a direct superior.
Is the appearance of independence of a CPA, or that CPA’s firm, is most likely to be impaired if the CPA serves as an executor and trustee of the estate of an individual who owned the majority of the stock of a closely held client corporation.
Yes --- According to Interpretation 101-1, independence is impaired with regard to the client if, during the period of the professional engagement, a covered member was a trustee of any trust or executor or administrator of any estate if such trust or estate had or was committed to acquire any direct or material indirect financial interest in the client, and the value of the estate’s holdings in the client exceeded 10% of the estate’s assets. An Ethics Ruling states that mere designation as trustee or executor does not impair independence but that actual service does.
According to Conduct Rule 102, Integrity and Objectivity, a member of the AICPA who has a difference of opinion with his or her supervisor about statement preparation has an
obligation to act if a material misstatement would otherwise result.
If the member concludes that the position taken by others is not in compliance, but does not result in a material misrepresentation of fact or violation of laws or regulation, then the threats to integrity and objectivity would not be considered significant. The member, however, should discuss the concerns with the supervisor and, if not resolved, higher levels of management. If still not resolved, the member should consider (1) determining whether any additional reporting requirements exist and (2) documenting his or her understanding of the issues and the nature of the discussions. If the member concludes that appropriate action was not taken and a material misrepresentation of fact or violation of laws or regulation exists, the member should consider ending his or her relationship with the member’s organization and take appropriate steps to eliminate his or her exposure to subordination of judgment.
According to the ethical standards of the profession, is the following act is generally prohibited?
Retaining client-provided records after an engagement is terminated prior to completion and the client has demanded their return.
Yes ---- Retention of client-provided records after the client has demanded their return is an act discreditable to the profession. Even if the state in which a member practices grants a lien on certain records, this ethical standard is still applicable.