[vanessa000abc]

Below is what I google on internet which I have the same questions. Please help! Thanks.

i, guys. I’m going through my final review and basically I’m mixing up many concepts and key words and definitions and formula. I need your help.

I don’t quite understand when the book talks about how an auditor’s independence would be impaired by his/her immediate family or the term “member.” Please have a look at the questions below, thanks.

Question 1:

Under the ethical standards of the profession, which of the following situations involving nondependent members of an auditor’s family is most likely to impair the auditor’s independence?

a. A parent’s immaterial investment in a client

b. A first cousin’s loan from a client.

c. A spouse’s employment with a client.

d. A sibling’s loan to a director of a client.

Explanation:

Choice “c” is correct. Under Rule 101 of the Code of Professional Conduct, a member of a firm who is subject to independence in fact and appearance extends to the member’s spouse, dependent children, and dependent relatives. A spouse working for a client is considered part of the class of “members” subject to independence.

Choices “a”, “b”, and “d” are incorrect. These choices do not by definition, fall within the “member” class.

My Doubt:

I don’t agree with Choice C because on R4-41 c. (1) Independence Impaired by Business Relationships it said:

“Independence is not impaired by an immediate family member’s employment with a client provided that (s)he is not in a key position (e.g., independence would be impaired if the spouse was the client’s internal auditor).”

Wouldn’t that make Choice C (A spouse’s employment with a client.) incorrect since the we have no way to know if the spouse holds a key position?

Question 2:

Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of the following circumstances impairs Kar’s independence?

a. During the period of the professional engagement, Fort gives Kar tickets to a football game worth $75.

b. Kar owns stock in a corporation that Fort’s 401(k) plan also invests in.

c. Kar’s friend, an employee of another local accounting firm, prepares Fort’s tax returns.

d. Kar’s sibling is an internal auditor employed part-time by Fort.

Explanation:

Choice “d” is correct. Independence of a member is impaired if the CPA’s spouse, parent, child, sibling, etc. are employed by the client in a position that is audit sensitive (i.e., internal auditor, cashier, accounting supervisor, etc.).

Choice “a” is incorrect because the tickets will probably be considered a token gift, and receipt of a token gift does not impair independence.

Choice “b” is incorrect because such an indirect ownership interest will not be deemed to affect independence.

Choice “c” is incorrect because a friend’s relationship to the audit client does not affect independence.

My Doubt:

In Question 1, the sibling is ruled out of being a “member” of the immediate family thus even that sibling had a loan to the client’s director, there was no impairment to the auditor’s independence.

All of a sudden in Question 2, the sibling is considered a member of the auditor’s family and would impair his independence.

Why is that sometimes the rule says one thing and another time the rules says something else?

Sorry for making your read so much. I hope it’s not too confusing.

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[Anonymous]

vanessa,

A general rule of thumb is this … for independence issues spouses are counted first in the relationship line.

Spouse = your other half … i.e under the same roof(supposedly)

dependents are next in line followed by independents.

Here you are selecting the “BEST” answer choice in both. so nothing about spouse in question 2.

You have to look at the two as unrelated questions and pick the best answer choice for each.

Furthermore Q#2 choice can have a huge impact on the audit (vital position by sibling)

Regards

[Faintear]

If I understand this correctly

For question 1: They ask for “most likely” impair independence. Out of all those answers, answer C seems to be the most likely considering that are working directly for the client also that it is their spouse.

For question 2: The sibling is working as an “internal auditor” which I would think would be a key or important position of the company.

I don't really like the sound of the first question either. Just kinda have to roll with it.

[vanessa000abc]

to question 1, I think that the parent of the cpa is close relative , so the cpa indirect own the client the stock.

[Author]

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