[xxadyh]

Hey guys, I’m having troubles understand the independence rules apply to auditor. I found the following rules and explanation from AICPA Plain English Guide and hoping that someone could help me on this.

“Under the SEC rules, your close family members include your spouse (or equivalent) and dependents and your parents, nondependent children, and siblings. if you are a covered person, your independence is affected if your close family member

– has an accounting role or financial reporting oversight role with the Sec audit client (for example, the family member is a treasurer, CFO, accounting supervisor, or controller) or
– owns more than 5% of a client’s equity securities or control the client.

However, under the financial relationship section, it says that as a cover member, you (and your spouse or spousal equivalent and dependents) are not permitted to have a

– direct financial interest in an attest client, regardless of how immaterial it would be to your net worth.
– material indirect financial interest in the attest client.

examples of financial interest include shares of stock; mutual fund shares; debt security issued by an entity; partnership units; stock rights, options or warrants to acquire an interest in an attest client; or rights of participation, such as puts, calls or straddles.

from the above, one says 5% or less than 5% ownership of audit client by the close family member is not going to impair the auditor’s independence. however, on the other hand, the financial relationship says, the direct ownership in attest client by the auditor and it’s spouse and dependent children will impair it’s independence regardless the materiality. It seems contrdicted based on the explanation. Can anyone help me with this?

Thanks

[Missy]

There's a difference between owning 5% or more of a company and how material it is to your own net worth. Warren Buffett could own 100% of the company I work for and it would be completely immaterial to him. If I owned 4% of the company I work for it worked be very material to MY net worth despite not meeting the 5% limit

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Author]

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